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This Week’s Top Bond Market Stories – September 13th Edition

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LearnBonds: – Making sense of the small business optimism index. – There is so much ‘noise’ and uncertainty in the system that small business owners are finding it difficult to be optimistic in this environment. Overall, small business is still not in a good place.

LearnBonds: – Price Inflation – A history lesson. In today’s day and age, it seems like everyone expects a future filled with price inflation.  And who can blame people?  Over the past 50 years, prices have increased seven-fold. That’s not a typo. According to the Bureau of Labor Statistics’ “CPI Inflation Calculator,” on average, what you could buy for $1 in 1964 will now cost $7.69. If you are a young person getting ready to enter the workforce, let that figure sink in.

LearnBonds: – McDonald’s : Is the market’s taste for it waning? – Nobody is bigger in the restaurant business than McDonald’s: it has more than 35,000 stores in 100 countries on six continents, and says its serves 70 million people a day. But if you’re an investor, you want to know about McDonald’s future, and, to be honest, it’s nothing like its 60-year history. Instead of remaining on a sure-fire growth trajectory, the fast food chain is battling to maintain market share and revenue growth, and is a value play.

LearnBonds: – Making sense of recent jobless claims data. – For much of the third quarter, Jobless Claims data have provided rays of hope that job growth was gaining speed. However, for two consecutive weeks we have seen initial claims edge higher. So what’s happening?

 

To see a list of high yielding CDs go here.

 

Municipal Bonds

Bond Buyer: – Muni managers unearth secondary market for price discovery. – Some municipal fund managers are finding it’s possible to use the secondary market to help determine fair bond pricing after a drop in new issuance has limited their reliance on the primary market as a benchmark.

Income Investing: – How to diversify your muni investments. – It can be tempting for muni investors to load up on home-state bonds to target the tax-free income you get as a resident in most states. But diversification is as important in the muni market as it is to other types of investing. Alan Schankel, municipal bond strategist at Janney Montgomery Scott, says no more than half of a muni portfolio should consist of any single state’s bonds, with the rest consisting of bonds from various other types of issuers and sectors.

Pro Publica: – Investors haul in nearly half the Tobacco settlement cash. – An updated tally by ProPublica shows that tobacco bondholders are due $2.6 billion of the $6 billion in this year’s payouts to state and local governments from Big Tobacco.

Bloomberg: – N.J. rating cut by S&P as Christie gets record downgrade. – New Jersey had its credit rating cut one step by Standard & Poor’s, giving Chris Christie his eighth downgrade, the most ever for a Garden State governor.

 

Education

Becoming the Capitalist: – What is a laddered stripped treasury? – ‘Stripped Treasuries’ are Treasury securities that pay out no interest, but are sold at a discount from their face value and at maturity can be cashed in at face value. This type of bond is sometimes called a ‘zero-coupon bond.’ In effect, the interest earned is reinvested instead of paid out. The advantage of this is that the interest doesn’t have to be reinvested every six months, but automatically earns the rate of the original bond.

 

Bond Market

Linus Wilson: – Will Tepper tantrum sink the bond bubble? – Hedge fund titan, multi-billionaire David Tepper of Appaloosa Management told Bloomberg, “It’s the beginning of the end of the bond market rally. We are done.”

Bloomberg: – Traders brace for bond volatility before rate increases. – Options on U.S. Treasuries reached the most expensive in more than a year relative to equities, reflecting bets that monetary tightening from the Federal Reserve will generate bigger price swings in government bonds.

Business Spectator: – Banker warns of ’94-style bond crash. – One of Australia’s most respected bankers has warned of a 1994-style bond crash as central banks inflate asset bubbles around the world.

Morningstar: – Caution in the bond market. – Across the wide range of bond markets, yields are close to all-time lows. Indeed, in continental Europe bond yields are the lowest in some 500 years.

Bloomberg: – Bonds investors turn to leverage in low-yield desperation. – Bloomberg’s Lisa Abramowicz and Julie Hyman examine how investors are using leverage to boost yield. They speak in “On The Markets” on Bloomberg Television’s “In The Loop.”

 

Treasury Bonds

WSJ: – U.S. debt gets a boost from abroad. (Subscription required) Stepped-up central-bank intervention in Europe is bolstering the appeal of U.S. Treasury debt among a surprising crowd: bargain hunters.

MarketWatch: – 10-year Treasury yield eyes highest close in six weeks. – Treasury prices slid Tuesday, putting the benchmark yield on track to rise to a six-week high.

MarketWatch: – 10-year Treasury yield eyes highest close in six weeks. – Treasury prices slid Tuesday, putting the benchmark yield on track to rise to a six-week high.

WSJ: – PIMCO reduces holdings of U.S. government-related debt.(subscription required) Bill Gross cut U.S. government-related debt holdings at the Pimco Total Return Fund in August while slightly raising exposure to corporate bonds.

 

Investment Grade Bonds

Market Realist: – Overview: Investment-grade bond ETFs. – U.S. investment-grade bonds can provide investors with a safe and steady income stream. They’re issued by the U.S. Department of the Treasury and corporates—for example, blue-chip companies like Comcast (or CMCSA) and Mondelez (or MDLZ). The issuers have a very high ability to service the debt issued. There’s little risk of default.

Market Realist: – Overview: Investment-grade bond ETFs. – U.S. investment-grade bonds can provide investors with a safe and steady income stream. They’re issued by the U.S. Department of the Treasury and corporates—for example, blue-chip companies like Comcast (or CMCSA) and Mondelez (or MDLZ). The issuers have a very high ability to service the debt issued. There’s little risk of default.

Bloomberg: – Baloise buys U.S. leveraged loans in corporate debt push. – Baloise Holding AG (BALN) is buying U.S. leveraged loans to increase its holdings of corporate debt, as insurers embrace riskier investments amid record-low interest rates.

FT: – Century bond surge defies rate fears. – Investors are seizing the chance to lend money to US companies and municipalities for up to 100 years in exchange for a chance to capture higher yields for longer.

 

High-Yield Bonds

JC Online: – High yield to benefit from weak jobs number, Draghi’s bond-buying. – The disappointing August jobs report may be troublesome for the economy, but it is positive for high yield investors, said Brian Kloss, portfolio manager for the Legg Mason Brandywine Global High Yield Fund.

Forbes: – JC Penney sets $350M bond offering; existing debt surges in trading. – J. C. Penney is seeking to test the primary high-yield market for the first time in 4.5 years with a $350 million offering of five-year (non-call life) senior notes as part of a refinancing exercise on three near-term maturities. J.P. Morgan, Barclays, and Goldman Sachs are joint bookrunners, and an investor call is scheduled for 10:30 a.m. EDT, with pricing scheduled for late this week, according to sources.

FT: – CLO surge prompts regulatory concerns. – Sales of bonds backed by riskier US corporate loans have surged to their highest level in seven years, helping to fuel a leveraged lending boom that is concerning regulators.

ETF Guide: – Are junk bonds signaling pause in equity rally? – What does the bond market know that the stock market doesn’t? Even the U.S. stocks have been scoring one record high after another, the SPDR Barclays High Yield Bond ETF has gone in the opposite direction.

Bloomberg: – Junk blitz making September busiest since 2008. – The riskiest borrowers are leading the busiest September in at least six years for speculative-grade bond sales in the U.S. as Moody’s Investors Service warns that protections in the debt are declining.

Bloomberg: – Junk-bond offerings struggle as buyers return to fleeing. – Junk-bond buyers have indigestion again. Speculative-grade borrowers from Jupiter Resources Ltd., an energy firm backed by Apollo Global Management LLC, to AK Steel Holding Corp. had to sweeten terms yesterday to sell at least $8.7 billion of debt. The offerings struggled as investors pulled $766 million from funds that buy the bonds in the past week.

 

Emerging Markets

The Globe and Mail: – What does it take to be an emerging markets investor? – You took a trip to faraway lands and bought the T-shirts, but as a do-it-yourself investor, should you also invest in those emerging markets? Probably not if you’re a novice. Unlike buying, say, an ETF based on a Canadian or U.S. index you know reasonably well, you really should know what you’re doing, the experts say.

Emerging Markets Daily: – Emerging market credit strategy. – Deutsche Bank warns investors to brace for more risk in some emerging market bond portfolios.

Bloomberg: – Hugo Chavez’s absence felt on Wall Street bond desks. – Venezuelan bond investors are learning the hard way that Nicolas Maduro is no Hugo Chavez.

Bloomberg: – Carson Block’s Muddy Waters researches debt-market shorts. – Carson Block, who gained fame with successful bets against Chinese stocks, said he is turning his attention to debt securities in search of opportunities to short a bubble in emerging and frontier credit markets.

Investopedia: – Invest in emerging market bonds with these ETFs. – As many investors are aware, the current interest rate environment in the U.S. has been forcing fixed income investors to broaden their horizons when searching for yield. One area that has been gaining traction is emerging market bonds. Currently, there are several interesting candidates to choose from, but unfortunately the lack of coverage makes finding them a difficult task. We share with you several popular emerging market bond ETFs that could be worth a closer look.

 

Catastrophe Bonds

Steve Evans: – The growing popularity of the catastrophe bond variable reset. (Registration required) One of the interesting developments to note in the catastrophe bond and insurance-linked securities (ILS) market in the last couple of years is the growth of sponsor-friendly structures, such as the variable reset.

Insurance Journal: – Reinsurance alternative capital now 20% of cat market. – Aon Benfield Securities, the investment banking division of global reinsurance intermediary and capital advisor Aon Benfield, has issued its annual report on the insurance-linked securities (ILS) sector, which analyses the key trends witnessed in the 12 months to June 30, 2014.

 

Investment Strategy

InvestorPlace: – Vanguard Index Funds vs Vanguard ETFs. – With their current pricing structure, Vanguard index funds might be a better choice than their ETF counterparts.

Bloomberg: – Don’t hate credit, just use leverage for 10% returns. – Stop complaining junk-bond yields are too low. Instead, just use borrowed money to juice returns. That’s the message from Citigroup Inc. analysts, anyway.

Morningstar: – 3 Foreign bond funds for conservative investors. – Picks for globalizing a portfolio without adding a lot of volatility.

Morningstar: – The error-proof portfolio: Is your ‘balanced’ fund binging on junk bonds? – Some supposedly staid allocation funds have ventured down the credit-quality ladder.

Potrero View: – Investors should be wary of long-term bonds. – It’s a bad time to own or buy bonds, such as fixed coupon bonds with mid- to long-term maturities, which include the most common type of bonds, U.S. Government Treasuries. Why should bonds be avoided? Mainly because there’s a high probability interest rates will rise over the next couple of years.

 

Bond Funds

FT: – Bond ETFs’ lure of backdoor to liquidity. (Subscription required) Investors have been piling into bond exchange traded funds at an accelerating pace, lured not only by the search for yield but the promise of liquidity that may be greater than that of the underlying market.

Investment News: – SEC assessment of mutual fund risk could lead to more disclosure. – The Securities and Exchange Commission has started to work on rules that could require more transparency about mutual fund portfolio holdings and limit their use of alternative investment strategies, according to a story in today’s Wall Street Journal.

ETF.com: – Daily ETF watch: ‘LadderRite’ fund lists. – Invesco PowerShares is rolling out a laddered-strategy bond fund that is a sort of follow-up to an ETF the firm launched several years ago.

Morningstar: – The still-sorry state of bond-fund disclosure. – It’s five years after the crisis, and bond funds still badly need to improve how they tell shareholders what they own.

All trading carries risk. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.
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