This Week’s Top Bond Market Stories – September 27th Edition

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Learn Bonds: – Making sense of municipal finance, housing and more. – Tom Kozlik, a municipal credit analyst for Janney Montgomery Scott presents what we consider a well-rounded description of municipal finance at the present time.

Learn Bonds: – Concern over weak economy causes inflationary expectations to drop. – If longer-term investors cannot live with such volatility, then bonds are probably not the place they should be.

Learn Bonds: – Financial commentary – Beware of misinformation. – One of the challenges many investors encounter along their investing journey, is to determine what financial commentary is worth paying attention to and what is worth ignoring.  Over the years, I’ve noticed plenty of less than factual information written in financial commentaries, especially concerning bonds.  In general, the financial industry seems geared toward promoting equity investments and instilling fear in those considering something else—like fixed income.

Learn Bonds: – The wisdom of the bond ladder. – For the average bond investor, getting into a game of predicting where interest rates will head over the near-term is likely a losing proposition. At the beginning of 2014 if you had followed the popular consensus and avoided bonds with the 10-Year Treasury at 3%, or worse yet shorted bonds, it would be you on short end of the call. In 2013, if you made a big bet on long bonds prior to the now renowned “taper tantrum,” well, let’s just say it was not the best time to buying long-term bonds.


Municipal Bonds

The Bond Buyer: – Wanted: Fresh high-yield paper, P.R., Detroit need not apply. – Sophisticated investors are grabbing for high-yield municipal debt whenever they can find it, creating demand for alternatives beyond the Puerto Rico, Detroit, and tobacco bonds that dominate the non-investment grade segment of the secondary market.

MMA: – Municipal market brief. – Has the non-HQLA designation of municipal bonds been overblown? Has retail re-entered the market? All that and more in this months market brief.

Post and Courier: – Charleston looks to sell $5 million in bonds to fund museum, aquarium upgrades. – Charleston City Council is expected to vote Tuesday to loan the S.C. Aquarium and the Gibbes Museum of Art a combined $5 million for upgrades.

WSJ: – Stringer calls for green bonds in New York. – Comptroller Scott Stringer wants New York to become the nation’s first major city to issue municipal bonds dedicated to financing environmentally friendly projects, as a wave of infrastructure and post-Sandy construction begins.

Charles Schwab: – Not always tax free: 7 tax traps of municipal bond investing. – Although municipal bonds are one of the few investments that pay interest that is generally exempt from federal income taxes, the interest payments are not always free from all taxes. Below we identify some of the taxes that could apply if you buy muni bonds.


Bond Market

Institutional Investor: – Green bonds planting seeds for eco-friendly investment. – Investor interest in green bonds is on the rise, with new issues meeting steady demand. Green bonds offer investors and issuers an opportunity to engage in long-term sustainable initiatives – which may become critical to the global economy. But green bonds do have their risks.

Financial Post: – Managers warn against bond market complacency. – Christine Horoyski says the biggest risk facing the bond market these days is investor complacency surrounding the U.S. Federal Reserve’s tightening policies.

WSJ: – Fed’s Bullard still looks to 1st quarter 2015 Fed rate increase. (Subscription required) Federal Reserve Bank of St. Louis President James Bullard said Tuesday that he still sees the U.S. central bank raising interest rates some time early next year.

Bloomberg: – Real estate munis coveted in riskless return chase. – Debt backed by real estate is the best-performing part of the $3.7 trillion municipal market this year when factoring in price swings as housing foreclosures ebb.

Businessweek: – Bond traders are fading away. – The size of the bond market in the U.S. ballooned to $37.8 trillion at the end of 2013, up $5.1 trillion since 2008, as issuers took advantage of low interest rates to raise money. Even so, trading in dollar-denominated bonds declined 22 percent to a daily average of $809 billion, according to data from the Securities Industry & Financial Markets Association.


Treasury Bonds

USA Today: – What to Watch: TIPS have been challenged lately. – If you’re worried about inflation, you’ve probably thought about investing in TIPS — Treasury Inflation-Protected Securities. And if you have invested in funds that invest in TIPS, you’re probably wondering why they have had such tiny returns the past 12 months.

Nasdaq: – Treasury bonds gain on haven demand. – Treasury bonds strengthened on Tuesday as worries over the eurozone’s economic growth and geopolitical tensions boosted demand for ultrasafe U.S. government debt.

Yahoo Finance: – ‘Everybody’ hates Treasuries…and then there’s Gary Shilling. – U.S. Treasuries continue to benefit from the combination of rising geopolitical tension and fears of slowing global growth. At 2.54%, the yield on the 10-year Treasury hit their lowest level since Sept. 11 on Tuesday morning.

Reuters: – Bond yields dip on weak U.S. durable goods, services sector data. – Long-dated U.S. Treasuries yields fell to their lowest in over two weeks on Thursday after weak U.S. durable goods orders and services sector growth cast doubt on the strength of the U.S. economy and fueled safe-haven bids.

Andrew Sachais: – Why you should consider selling your TIPS holdings. – Expectations for the Federal Reserve to raise short term rates next summer have pushed Treasury yields higher. Similarly, U.S. consumer prices remain muted. These two developments have weighed on inflation expectations, pushing inflation-protected securities lower.


Investment Grade Bonds

Bloomberg: – Mizuho leads $30 billion of bond sales as yields rise. – Mizuho Financial Group Inc. and Aecom Technology Corp. led at least $30 billion of corporate bond offerings this week, keeping September on pace for the busiest month in a year as borrowing costs rise from almost record-low levels.

FT: – U.S. corporate bond traders go electronic. (Subscription required) The last bastion of wild west trading on Wall Street is coming under increasing scrutiny from regulators and investors.

BizNews: – Investors in corporate bond funds are vulnerable: warnings. – Corporate bond funds are in the spotlight again. There have been alarm bells ringing in global bond markets for some time. More recent news out of the U.S. is that liquidity has all but dried up for corporate issues. If you have exposure to international corporate bonds, through a unit trust or exchange traded fund, be warned: you are vulnerable.

Financial Post: – Why the ‘broken’ corporate bond market needs an overhaul. – The world’s largest money manager says the corporate bond market is broken and it is time for change. But why?


High-Yield Bonds

Adam Aloisi: – You might be a high yield sucker if… – Most mREITs have an inconsistent dividend model that needs to be well understood by those who invest in them. My opinion of what constitutes a “sucker” yield. Examples of some other sucker yield investments and situations.

Financial Advisor: – Understanding high-yield bonds? – High yield, debt securities offer higher income potential than high-quality or investment-grade bonds as compensation for their higher risk. We believe the bonds part of high-yield bonds, however, can be misleading.

Bloomberg: – Fed said to warn banks on capital charges on leveraged loans. – Federal Reserve officials are warning banks that rising levels of high-risk, high-yield loans on their balance sheets may require more capital held against them, according to a person familiar with the conversations.

Businessweek: – Phones 4u fallout blindsides junk corporate borrowers. – Fallout from the collapse of Phones 4u Ltd. has shaken investor confidence in the sterling high-yield debt market with bondholders in the U.K. retailer facing losses of as much as 275 million pounds ($450 million).

MarketWatch: – Get ready to ride the junk-bond roller coaster. – The market for junk bonds is turning dour again, just weeks after recovering from its most recent selloff. There are signs high-yield investors , who piled into the asset class in the years since the Great Recession gripped the market, are in for a bumpy ride.


Green Bonds

Reuters: – Barclays to invest $1.6 bln in green bonds by November 2015. –  Barclays will invest at least 1 billion pounds ($1.6 billion) by November next year in green bonds from issuers including the World Bank, the British bank said on Monday, more than trebling its investment in the sector.

Institutional Investor: – Green bonds planting seeds for eco-friendly investment. – Investor interest in green bonds is on the rise, with new issues meeting steady demand. Green bonds offer investors and issuers an opportunity to engage in long-term sustainable initiatives – which may become critical to the global economy. But green bonds do have their risks.


Emerging Markets

Morningstar: – Hidden risks in emerging-markets debt? – Fickle foreign portfolio flows add another dimension of volatility.

Bloomberg: – Hedge funds circling Venezuela as yields top 15%: Andes credit. – Hedge funds are stepping in to fill a vacuum in Venezuela’s bonds as deepening concern the nation will default triggers an investor exodus.

Wisdom Tree Blog: – Playing defense in emerging market fixed income. – While high yield flows continues to dominate the headlines, emerging markets have generally flown under the radar in recent months. In this discussion, we focus on how investors may be able to best position against a change in Federal Reserve policy while maintaining income potential from investments in emerging markets.

Emerging Markets Daily: – Could Argentina bonds rally after Friday hearing? – A U.S. judge has ordered Argentina to show in court Friday afternoon why it is not in contempt for violating orders favoring bond holders — especially U.S. hedge funds — that refused to accept terms on restructured bonds.


Catastrophe Bonds

Risk.net: – ILS demand fuels structural innovation. – In what is clearly a seller’s market, ILS issuers are finding they can dictate terms to their own advantage. The effect has been a burst of innovation including issuance in new currencies and the sale of bonds with unmodeled risks.


Investment Strategy

ETF.com: – Rieder: Bond investors must be tactical. – These are uncharted waters, to be certain, so you might as well throw out the rule books on fixed-income investing, according to Rick Rieder, BlackRock’s chief investment officer of Fundamental Fixed Income, and co-head of Americas Fixed Income. He says that bond investors must be tactical and opportunistic in a way they never had to be before.

Zacks: – Best ETF strategies for the fourth quarter. – With a recovering economy, still accommodative monetary policy and better-than expected corporate earnings, U.S. stocks have continued their slow upward march this year. Now, barring any unexpected major geopolitical flare-up, stocks seem well positioned to continue their positive momentum in the last quarter of this year.

USA Today: – What do rising interest rates mean to you? – Sooner or later, the Federal Reserve will have to raise interest rates, and this will affect you and every other investor in the United States. For bond investors, particularly in open-ended mutual funds, rising interest rates are bad news because as interest rates rise, bond values decrease.

ETF Channel:  SPDR Barclays high yield bond (JNK) enters oversold territory.  In trading on Thursday, shares of the SPDR Barclays High Yield Bond ETF entered into oversold territory, changing hands as low as $40.07 per share. We define oversold territory using the Relative Strength Index, or RSI, which is a technical analysis indicator used to measure momentum on a scale of zero to 100. A stock is considered to be oversold if the RSI reading falls below 30.


Bond Funds

Morningstar: – ETF advantages becoming more apparent to some. – Readers cite lower costs, lower investment minimums, access to sectors among reasons they’ve turned to exchange-traded funds.

The Globe and Mail: – Liquidity crunch in bonds hits ETFs, raises risk. – Index fund managers are finding it hard to secure the bonds they need at the prices they want, forcing them to make trade-offs that can hurt investors and leave managers vulnerable in a market downturn.

ETF.com: – When a free ETF isn’t cheap enough. The U.S. Treasury issued a new type of security in January of this year: Treasury securities with floating rather than fixed rates. ETF issuers wasted little time doing what they do best—offering cheap, plain-vanilla exposure to it. But investor interest in the new ETFs has been  modest.

ETF.com: – 3 Overreactions To PIMCO’s Probe. – If PIMCO has been buying bonds at a discount, then using a pricing service to value its bonds. It is my belief that both of these are not only standard practice, but pretty much the only option. Has PIMCO actually done anything wrong?

Zacks: – Capture the housing uptick with these 5 mortgage-backed mutual funds. – Overall, the levels of negative homeowner’s equity has been on the decline since the beginning of the year. Essentially, people’s homes are now worth more than they owe in greater percentages than in the beginning of 2014.


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