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Time to Get Your Ship In Order…Fed May Taper in September…Banker Gets 18 Months For Bond Rigging…and more!

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Barron’s: – Prepare for weak or negative bond returns. – Steven Wieting, global chief investment strategist at Citi Private Bank, says the current pause in the bond market rout provides investors with “a window of time to prepare portfolios for a more challenging fixed income environment in the years ahead.

Bloomberg: – Bernanke seen slowing QE to $65 billion in September. – Federal Reserve Chairman Ben S. Bernanke in September will trim the Fed’s monthly bond buying to $65 billion from the current pace of $85 billion, according to a growing number of economists surveyed by Bloomberg News.

WSJ: – UBS ex-official gets 18 months in muni bond-rigging case. – The former co-head of a UBS AG municipal bond desk in New York was sentenced to an 18-month prison term, the latest penalty in the U.S. government’s years long investigation into municipal bond bid-rigging.

Learn Bonds: – Best Buy’s new 5-year bond yields 5%. – It doesn’t seem like all that long ago that Best Buy’s stock and bonds were tanking and the investment community had the company pegged as doomed. Since the beginning of 2013, however, things have changed. The stock, trading under $12 per share at the end of 2012, recently topped $30. The bonds have also seen notable improvement since the beginning of the year. As the two charts below illustrate, yields on the 2016 and 2021 maturing Best Buy notes have declined significantly in recent months.

Harvard Business School: – Detroit files for bankruptcy: HBS faculty weigh in. – After a long period of economic decline, the city of Detroit filed for bankruptcy protection last week. John Macomber, Robert Pozen, Eric Werker, and Benjamin Kennedy offer their views on some down-the-road scenarios.

Anthony Valeri: – This weeks bond market perspectives: Debacle in Detroit. – Aside from a short-term psychological impact, we see limited municipal market impact from Detroit as  supply-demand dynamics should remain a primary driver of market movements. We do not see Detroit as the harbinger of a municipal bond default wave. Bankruptcies and defaults should remain isolated cases and not representative of the broader health of the municipal bond market.

ETF Trends: – Amid rebound, cash pours into junk bond ETFs. – With the May/June slide behind them, junk bond ETFs are once again drawing interest from investors and the inflows data supports that assertion. Since the start of July, HYG has hauled in $1.1 billion in investments this month while JNK has raked in nearly $325 million, according Indexuniverse data.

Investorplace: – Starved for high yield? Wait a little longer. – Yield assets have had a good run since late June, but don’t get carried away.

Bloomberg: – Detroit’s first bankruptcy hearing starts amid protests. – Detroit’s first court hearing after filing the biggest U.S. municipal bankruptcy began today as city workers seeking to protect their pensions protested outside.

Reuters:  – Detroit bankruptcy judge finally gets his big case. – When Judge Steven Rhodes convenes the first hearing in Detroit’s bankruptcy on Wednesday, more than a hint of irony will permeate the city’s federal courthouse.

ETF Trends: – Muni bond ETFs: Green shoots. – Despite recent events in Detroit, I believe the famously coined term “green shoots” is an apt descriptor for the municipal bond market at this present time.

Hoisington Investment Management: – 2nd quarterly review and outlook. – In the aftermath of the debt induced panic years of 1873 and 1929 in the U.S. and 1989 in Japan, the long term government bond yield dropped to 2% between 13 and 14 years after the panic. The U.S. Treasury bond yield is tracking those previous experiences. Thus, the historical record also suggests that the secular low in long term rates is in the future.

Reuters: – Deal “imminent” to sell Harrisburg’s debt-laden incinerator. – The city of Harrisburg, Pennsylvania, said on Wednesday that it reached an agreement to sell the garbage incinerator that burned a $345 million hole in its finances and nearly left it bankrupt.

Hurriyet Daily News: – Bankrupt Detroit puts U.S. municipal bonds at risk. – The city of Detroit’s record bankruptcy filing has cast a cloud over the U.S. municipal bond market as creditors face potential steep losses on the typically safe investment.

Yahoo: – Bond investments may not be the safe bet. – In a harsh lesson, investors have recently learned that the safest of bonds become vulnerable when interest rates rise. U.S. Treasury bond funds, TIP funds and municipal bond funds have delivered sharp losses in the past two months. Analysts are worried that investors who see bond losses in account statements will think there is something wrong with their particular bond or bond fund and bolt.

ETF Trends: – Muni bond ETFs: Detroit city blues. – The path chosen for Detroit may likely set a precedent for other struggling cities and communities that undermines the totality of municipal finance. Should that occur, I believe there would be damage done to untold numbers of portfolios as confidence may disappear and valuations may potentially drop.

The News Tribune: – Bond investors should heed rising interest rates. – In a harsh lesson, investors have recently learned that the safest of bonds become vulnerable when interest rates rise. U.S. Treasury bond funds, Treasury Inflation-Protected (TIP) funds and municipal bond funds have delivered sharp losses in the past two months. Bonds have been destroying savings in college funds, 401(k) funds, IRAs and retirement nest eggs.

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