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U.S. 10-year notes were boosted on Friday following the release of somewhat disappointing jobs data, with the Labor Department reporting that the U.S. added only 142,000 new jobs in August. While the unemployment rate fell slightly to 6.1% from 6.2% in July.
This was well below analysts expectations of a much more robust 225,000 jobs in August but they did correctly predict the unemployment rate’s drop to 6.1%. The data breaks a streak of six straight months of payroll growth above the 200,000 mark.
To see a list of high yielding CDs go here.
Treasury prices soared on the news, with the 10-year note climbing 12/32 to yield 2.403% and the 30-year bond up 12/32 to yield 3.183%, according to Tradeweb data.
The big question is, will the Fed be discouraged enough by the pace of economic gains to delay its first interest-rate hike, which is widely expected to come in mid-2015?
The general consensus appears to be no! Sam Diedrich, fixed-income portfolio manager at Pacific Alternative Asset Management Company said: “The August jobs report tends to be one of the most revised numbers,” noting that the weak hiring looks out of step with other recent economic data. “This report doesn’t really jibe with the strong ISM number we saw earlier this week. I would expect this to be a deviation rather than a new trend.”
And Rick Rieder, CIO of fundamental fixed income at BlackRock said: “The employment data released today was clearly disappointing, but was consistent with the readings generally released in August, which are usually subsequently revised higher. Today’s data reflects seasonal weakness in hiring as well as structural headwinds still facing labor markets.”
Todays Other Top Stories
LearnBonds: – JPMorgan Chase – Are the skies brightening or darkening? – My attitude on banking giant JPMorgan Chase (NYSE: JPM) can be summed up in what its second-quarter 2014 earnings report two weeks ago: both good and bad, rays of optimism but also some clouds on the horizon. In short, my view is that, while Wall Street is quite bullish on JPM, it’s not clear to me just how bright the stock’s prospects are after a five-year run of handy outperformance. So my call is “Hold”: don’t sell shares if you own them, but don’t buy if you don’t own any – at least not yet, in either case.
Medium.com: – All bonds go to heaven. – Kristi Culpepper formerly known as ‘Munilass’ looks at the trade-offs between liquidity and credit quality in the municipal bond market.
Bloomberg: – Virgin Islands echoes Puerto Rico gains amid stress. – Debt from the U.S. Virgin Islands, where the budget deficit has grown to about twice its 2009 level, has gained 10.2 percent this year, Barclays Plc data show. Securities of Puerto Rico, the junk-rated commonwealth 40 miles (64 kilometers) west in the Caribbean, have rallied 9.7 percent. The returns are the third-and fourth-best among states and territories.
WSJ: – Driving Muni Bond Rally: Communities Reluctant to Borrow. – Tight budgets and hostile voters mean cities aren’t issuing bonds; tight supply boosts prices.
Income Investing: – Munis in limbo awaiting clarity on bank liquidity regulations. – Yesterday the Fed announced a new rule detailing what easy-to-sell investments big banks need to hold in reserve in case of a crisis. When it came to deciding if municipal bonds should be eligible, regulators basically punted. Munis aren’t eligible for now. The announcement didn’t cause any real drop in muni-bond prices, but analysts say munis could suffer in the long run if they’re not eventually granted HQLA membership.
Bloomberg: – Wall Street muni bond fees decline to lowest since 2004. – States and localities are paying Wall Street banks the lowest fees in at least a decade to structure municipal-bond deals as dwindling issuance fosters competition between underwriters.
Detroit News: – As promised, S&P lowers ratings on tendered Detroit water and sewer bonds. – In the world of municipal bonds, a promise is supposed to be a promise except, as some Detroit bondholders are finding, when a city goes through the largest municipal bankruptcy in history.
WSJ: – U.S. Government bonds gain on jobs report. – Treasury bonds strengthened on Friday as a disappointing U.S. employment report for August boosted the allure of haven assets.
WSJ: – Companies step up bond sales as rates remain low. – (Subscription required) In the U.S. corporate-bond market, summer vacation is over. Companies of all stripes are flooding the market with bond deals, making this week one of the busiest of the year so far, as corporate treasurers continue to take advantage of low rates and investors bet an improving U.S. economy will bode well for business.
High Yield Bonds
Forbes: – U.S. High yield bond funds see first cash outflow in four weeks. – Retail cash flow to U.S. high-yield funds turned negative for the first time in four weeks, with a $198 million outflow in the week ended Sept. 3, according to Lipper. The influence of ETFs looms fairly large, at 37% of the sum, or an outflow of $74 million this past week.
The National Law Review: – High yield debt and the decrease in bankruptcy filings. – It is no surprise to anyone involved in the restructuring community that bankruptcy filings continue to decline. As reported by the American Bankruptcy Institute, corporate chapter 11 filings have decreased 34 percent since 2013.
For the Record: – Evolution of emerging market debt. – Investors are closely reevaluating their portfolios following a global credit crisis and currently facing the headwinds of increasing sovereign credit risk, rising inflation, and escalating worldwide fiscal deficits.
FTSE: – Investors sail full steam into unchartered waters of EM bonds. – As equity markets continue their ascent into unchartered territory, an unlikely beneficiary continues to be emerging market bonds. As of the end of August, the FTSE Euro Emerging Markets Bond Index has risen 6.8% YTD. The index rose despite significant headwinds for emerging markets, including escalating turmoil in Russia, the Argentinian default and the increasing likelihood of the US Federal Reserve raising its target rate.
CNBC: – The unintended beneficiary of ECB’s policy move. – The European Central Bank (ECB) is back in “whatever it takes” mode to stimulate the sputtering economy and Asian markets are set to benefit, say strategists.
Reuters: – Emerging market debt trading volume up to $1.668 trln in Q2. – Trading volumes of emerging market debt rose five percent in the second quarter of 2014 versus the same period a year ago, and for the first time ever trading of corporate Eurobonds exceeded that of sovereign Eurobonds, a new survey showed on Friday.
Wall St Daily: – ETF flows show investors hate agribusiness. – They say there’s safety in numbers. Indeed, most investors seem to believe as much. They continually exhibit herd behavior, swarming from one hot sector or stock to the next. However, following the herd leads to mediocre performance at best and crippling losses at worst.
ETF Trends: – Use high-yield bond ETFs with moderation. – High-yield, junk bond exchange traded funds provide fixed-income portfolios with that extra kick, but investors should not go overboard with their exposure.
Bloomberg: – Investors pull $435 million from loan funds in U.S., Lipper says. – Investors pulled $435 million from U.S. funds that buy leveraged loans, the eighth straight weekly outflow, according to Lipper.
Zacks: – 5 Strong buy diversified bond mutual funds to bet on. – We will share with you 5 top rated diversified bond mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all real estate funds, investors can click here to see the complete list of funds.
Kiesel Dep CIO: With modest wage growth Fed tightening should be slow. QE likely coming in Europe. Stay long credit & peripheral risk.
— PIMCO (@PIMCO) September 5, 2014
The long bond is trading very “long” – it should be up more than it is on the data – look for fade in price/higher yields
— Peter Tchir (@TFMkts) September 5, 2014
@munilass Corp bond liquidity likely to be dramatically worse during next stress period: less dealer balance sheet and more retail holders
— Mike Craft (@MikeCraft6) September 5, 2014