This Week’s Top Bond Market Stories – October 4th Edition

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Learn Bonds: – Making sense of a perplexing year in the bond market. – Trying to understand the movement in the bond market this year has been perplexing for many. Perhaps it would be instructive to listen to someone who “got it right” so far in 2014.

Learn Bonds: – Bond Ratings – One person’s junk is another person’s treasure. – Why is it that certain securities are assigned “junk” ratings, when, in my opinion, they deserve an investment-grade rating. And how is it some companies manage to hold on to their triple-B-rated holdings, when quite frankly they don’t deserve to?

Learn Bonds: – Making sense of Pimco, Gross, China and recent market news. – The Wall Street Journal reports that $10 billion left Pimco last Friday. If this was because investors decided that different strategies were better suited to their goals, objectives and risk tolerances that is fine. However, if investors moved capital away from Pimco because Bill Gross is no longer there, they may have acted hastily.

Learn Bonds: – The long and short of bond market yields. – Though today’s low interest rate environment has muted the relative allure of investing in bonds, one of the great things about looking at the fixed-income market is the flexibility that it affords. Investors have taxable and non-taxable options, the ability to take positions in short- and/or longer-term paper, and can tailor credit quality to suit individual risk tolerances.

Learn Bonds: – 3M – Firing on all cylinders. – Not every Wall Street analyst has a buy recommendation on 3M (NYSE: MMM) – in fact, only about a third do. So, I keep looking for a reason not to buy it and I can’t find one. This $31 billion global industrial conglomerate headquartered in the heartland (near St. Paul, Minnesota) has long been a winner for investors, and to me looks like it’s just going to keep on being one.

To see a list of high yielding CDs go here.

Municipal Bonds

Bernardi Securities: – Premium municipal bonds: Benefits in a rising rate environment. – Many investors find it difficult to pay a price greater than par for a bond. We often find this hesitation is purely psychological and causes some investors to miss an advantageous structure in a low interest rate environment. This market commentary is written to explain why premium municipal bonds often offer value in today’s market — helping to justify paying above par for a bond.

Bloomberg: – Junk bonds prove September Treasure as defaults ebb: Muni credit. – The riskiest municipal bonds are beating the market for the longest stretch in 20 months as investors bet a strengthening economy will keep defaults at the lowest in five years.

Bloomberg: – California water debt seen safe from drought’s grip: Muni Credit. – While California’s water reserves are dwindling amid an intensifying drought, there’s no dry spell when it comes to buyers of debt issued by the agency running the water system supplying 25 million people.

Reuters: – Detroit should be able to borrow after bankruptcy -consultant. – Detroit should be able to access capital markets and borrow at a rate of around 5 percent after it exits bankruptcy, as long as its tax revenue remains stable, a city consultant said on Tuesday.

Reuters: – Bank of America top U.S. muni underwriter in Jan-Sept. – Bank of America Merrill Lynch remained the top senior underwriter of U.S. municipal debt in the first nine months of 2014, with 262 deals totaling $28.77 billion, Thomson Reuters data released on Wednesday showed.


Bond Market

FT: – Pimco upheaval rattles bond market. (Subscription required) Upheaval at the top of Pimco rattled US bond and derivatives markets on Monday, as pension funds and other large investors braced for large outflows from the world’s largest bond manager.

Income Investing: – Pimco redemptions threaten high yield, EM bonds – Janney. – Bill Gross’s abrupt departure from Pimco last week was a big enough deal in bond-land that it actually got blamed for dragging Treasury bond prices lower on Friday, in addition to kicking off outflows from Pimco. While Treasuries took a hit last week, some less-liquid corners of the bond market could get hurt in the days and weeks ahead because of Gross’s jump to Janus, according to Janney Montgomery Scott‘s chief fixed-income strategist, Guy LeBas.

MarketWatch: – The bond market’s terrible September in one chart. – Bond investors should be happy that September is coming to an end.

Market Realist: – Primary markets update—US Treasuries and high-grade bonds. – In this series, we’ll discuss bond sales made by the U.S. Treasury. We’ll also analyze investment-grade corporate borrowers in the week ending September 26. We’ll discuss major secondary market trends affecting U.S. Treasury yields and corporate bond yields and spreads.

Reuters: – Investors batten down hatches for volatile end to 2014. – A Reuters poll of investment managers around the world published on Sept. 30 found a sense of caution manifested in people putting their biggest bets since March on bonds, which are typically regarded as a shelter against market volatility.


Treasury Bonds

Businessweek: – Bond warnings emerge as ’94 parallels seen in Fed-CPI split. – For bond investors who are convinced a lack of inflation will keep the Federal Reserve from upending Treasuries when it begins to raise interest rates, there’s one parallel in history that suggests they still have cause for concern.

WSJ: – U.S. Government bonds pull back. – Treasury bonds pulled back Tuesday as some riskier assets stabilized from a selloff. Investors had sold U.S. and European stocks on Monday and piled into ultrasafe U.S. government bonds on political disturbance in Hong Kong.

WSJ: – U.S. Government bonds rally. (Subscription) U.S. government bonds started the fourth quarter on a high note on Wednesday as manufacturing data added to worries over weak economic growth in the eurozone.

WSJ: – U.S. Government bonds rally. (Subscription) U.S. government bonds started the fourth quarter on a high note on Wednesday as manufacturing data added to worries over weak economic growth in the eurozone.

WSJ: – U.S. government bonds drop after jobs data. – A strong U.S. jobs report sparked selling in ultrasafe U.S. government bonds on Friday as investors embraced stocks.


Investment Grade Bonds

BlackRock: – Four ways to increase your corporate bond exposure. – Record low U.S. Treasury rates continue to push investors to find yield elsewhere, and it seems that corporations are rushing to meet the demand. Matt Tucker explains.

MarketWatch: – Corporate debt, derivatives feel heat from Pimco outflows. – With billions of dollars flying out the door at Pimco following “bond king” Bill Gross’s shocking exit, it’s no surprise to see some turmoil in financial markets. So far, the ripples have been contained, but they haven’t left all instruments unscathed.

WSJ: – Corporate bond sales coming at blockbuster pace.(Subscription) Bond sales from highly rated companies in the U.S. clocked a record pace through the third quarter, as companies took advantage of low rates and investors sought out securities that pay more interest than low-yielding government bonds.

Bloomberg: – Bayer sells $7 billion of bonds for Merck unit purchase. – A unit of Bayer AG sold $7 billion of notes in the company’s largest dollar-denominated bond issue to help fund the purchase of Merck & Co.’s (MRK) consumer-care business.

FT: – Bond investors demand more from corporate borrowers. – Investors are demanding more compensation from corporate borrowers seeking to raise funds in the US as market volatility rises and bond prices start to falter.


High-Yield Bonds

CNBC: – Is the long-expected high-yield selloff under way? – The selloff in high-yield bond exchange-traded-funds (ETFs) last week has revived fears that the sector may be headed for a bruising.

Investment Week: – PIMCO’s Kiesel: High yield sell-off means short-dated opportunity. (Registration required) The recent sell-off in high yield means opportunities in the ‘rising stars’, housing, and building materials sectors, explains PIMCO’s deputy CIO Mark Kiesel.

Forbes: – US high yield bond volume grows to $9.7B as Burger King prices. – U.S. high yield bond volume increased to $9.7 billion this week from $7.1 billion last week as 16 issuers priced deals in what was a tepid market. With last week’s activity, year-to-date issuance stands at $247 billion, compared to roughly $241 billion at this time in 2013, according to S&P Capital IQ/LCD.

Bloomberg: – Junk bonds rebound as BofA to BlackRock see opportunity. – The junk-bond market, ruffled by the abrupt departure of bond king Bill Gross from the firm he founded, is rallying by the most in almost two months as Bank of America Corp. urges investors to buy.

Bloomberg: – Tepper sees junk debt at fair value, equity prices not high. – Billionaire hedge-fund manager David Tepper said price-to-earnings ratios for U.S. stocks aren’t high and that junk bonds are at the midpoint of fair value.

ETF Trends: – Hunting for deals with a junk bond ETF. – I do the “ETF of the Week” for MarketWatch every Thursday on Chuck Jaffe’s MoneyLife Show where I highlight big movers and disappointments among exchange traded funds.


Emerging Markets

ETF Daily News: – Emerging market ETFs in trouble on stronger dollar? – With the U.S. economy appearing stronger from Q2 of this year, many investors turned their focus to the domestic market. This trend isn’t limited to the equity world either, as long-term Treasury securities have also seen solid inflows this year which can satisfy investors’ need for relatively better yield and capital appreciation.

Investopedia: – Emerging market bond ETFs: Look under the hood. With Treasury yields at historic lows — investors seeking to diversity their government bond holdings have turned to emerging markets, which historically have offered higher rates. Exchange-traded funds have often been an efficient way to access such investments, and their relatively low expense ratios and liquidity make them more palatable for those who want an easy way in and out.

Bloomberg: – Emerging-market bond sales surge over $900 billion on Asia deals. – Emerging-market bond sales are headed for an unprecedented year after the busiest nine months on record as borrowers seek to issue debt before U.S. interest rates start to rise.

Barron’s: – Emerging markets now in panic mode? The MSCI Emerging Market ETF is now in negative territory for the year, down 0.56%, and only up slightly if you include dividends.

FT Adviser: – Oracle: Remember the rules of the road. – Fans of emerging markets have had a tough few years, but the unexpectedly decent performance of emerging market stocks and bonds this year has many proclaiming that now is the time to take the plunge. Now could be the time to start investing in emerging markets. But bear in mind some rules of the road.

Reuters: – EM reaches critical juncture. Investors are increasingly fretting about the outlook for emerging markets as a combination of market and political risks threatens to derail a successful year for the asset class.


Catastrophe Bonds

Reuters: – Willis Group places $250 mln California catastrophe-bond. – Willis Capital Markets & Advisory (WCMA), part of Willis Group Holdings said on Friday it had structured and placed a $250 million catastrophe bond deal with California’s largest provider of workplace insurance.

Royal Gazette: – Golden State Re II deal shows cat bonds getting cheaper. – Catastrophe bonds are becoming a progressively cheaper form of reinsurance as the dynamics of the insurance-linked securities (ILS) sector change.

Canadian Underwriter: – Quiet third quarter for cat bond issuance, but 2014 could be ‘record-setting’. – No property and casualty catastrophe bond issuance activity occurred in the third quarter this year, but 2014 could still potentially be “record-setting,” according to a new report from Property Claim Services.


Investment Strategy

Financial Post: – How ETF investors can prepare for rising rates. There have been plenty of surprises this year as we head into the final quarter: yields failing to rise, a strengthening U.S. dollar, and a bull market that has continued without major hiccups despite significant geopolitical challenges and structural issues, particularly in Europe.

Focus on Funds: – BlackRock: Four ETFs to ride the corporate debt wave. – Bond ETFs have been growing in popularity as a simple way to own debt, and for those not scared off by the Securities and Exchange Commission’s probe of the Pimco Total Return ETF (BOND), BlackRock’s Matthew Tucker has some advice for investors.

FT: – Carry trade and junk bonds feel the squeeze. (Subscription) Extreme bets on high-yielding currencies have been knifed by the stronger greenback.

Professional Advisor: – Sector report: The challenges ahead for strategic bond managers. – After a strong start to the year, bond market bleakness appears to have caught up with funds in this sector. Oliver Kettlewell explores what to look out for as the year goes on.

ETF Daily News: – Making a move with bond ETFs. Let’s say that you are having doubts about your core bond holding and want to pull some money out, but you aren’t quite sure where you ultimately want to allocate it. It could take a few weeks to do the proper due diligence and find a new fund, how can you balance your desire to move quickly with your need to make a prudent decision about the new investment? Enter the ETF.


Bond Funds

ETF.com: – Has exodus from PIMCO’s ‘BOND’ begun? – A huge spike in trading volume Friday on the PIMCO Total Return ETF (BOND | B) suggests assets may be flowing out of the fund that, until Thursday, Sept. 24, was managed by Bill Gross, PIMCO’s legendary co-founder who resigned suddenly just before the firm was set to sack him.

Income Investing: – Morningstar cuts Pimco flagship fund rating to bronze from gold. – Morningstar late Monday night cut its analyst rating for the Pimco Total Return Fund (PTTAX) to bronze from gold. The move comes after the fund research company had put Pimco’s flagship fund under review following Friday’s surprise departure by longtime Pimco bond maven Bill Gross, who defected to Janus Capital (JNS), with billions of dollars expected to follow Gross out the door.

About.com: – Bill Gross’s PIMCO departure illustrates the perils of active management. Bill Gross, shocked the markets on September 26 when he announced he was leaving the firm he built and heading to rival firm Janus Capital Group. The lesson here for individual investors is, while active management can sometimes lead to market-beating returns, it also comes with significant risks.

David Merkel: – Possible bond ETF problems. – There have been a few parties worrying about crises stemming from ETFs, because they make it too easy for people to sell a lot of assets in a crisis. I think that fear is overblown, but I don’t think it is non-existent, and I would like to use a bond ETF as an example of what could be possible.

Tulsa World: – 5 reasons bonds may be less safe than you think. – Burned by the stock-market crash during the financial crisis, investors have poured a trillion dollars into bond funds in the past six years. They like the interest payments that bonds throw off and that their prices barely move day to day. But some experts say danger signs are flashing, and prices could fall fast. Here are five reasons bonds may be less safe than you think.


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Simon G

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