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Treasuries were boosted on Wednesday following the release of weak manufacturing reports out of the U.S. and Europe.
The news caused investors to pile into U.S. government bonds sending bond yields tumbling across the board. The yield on the benchmark 10-year note touched 2.416%, the lowest since Sept. 5. Yields fall as prices rise.
“Investors appear to be in a nervous state,” Kevin Giddis, head of fixed income at Raymond James told the WSJ “History has shown that when this nervousness is present, money tends to flow into the safest assets.”
The U.S. monthly manufacturing index fell to 56.6 last month from 59 in August, below economists expectations of 58.2.
In the euro-zone, manufacturing was hit by a surprise slide in German manufacturing, the first contraction in 15 months. While U.K, manufacturing grew at the slowest rate in 17 months in September.
Investors are grappling with uneven global growth and geopolitical risks in Ukraine and the Middle East. Investors kept a close eye on pro-democracy protests in Hong Kong amid concerns about a slowing economy in China.
In the U.S. the economy is gaining traction with the Fed widely expected to raise interest rates next year for the first time since 2006. Higher interest rates make newly minted bonds more attractive to buy, diluting the value of existing bonds.
Bond investors are now awaiting Friday’s nonfarm jobs report, one of the key data that influence the Federal Reserve’s interest-rate outlook. With economists expecting the economy to have added 215,000 new jobs in September, compared with 142,000 in August. Traders say a strong report could send bond yields higher as it could raise concerns that the Fed may raise its official interest rates sooner than investors expect.
Todays Other Top Stories
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.
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.
WSJ: – Puerto Rico bond plans slip out. – Web posting lifts curtain on June 2015 notes with 7.75% interest rate; Investors caught by surprise.
Bloomberg: – Vanguard home county posts highest U.S. wage growth: Muni credit. – The economic success of Chester County, Pennsylvania, isn’t just a result of being home to companies from Vanguard Group Inc. to QVC Inc. Mushroom farms also matter.
MarketWatch: – The bond market’s terrible September in one chart. – Bond investors should be happy that September is coming to an end.
FT Adviser: – Callow warns on bond valuations. – (Subscription) Seneca Investment Managers’ Simon Callow has amplified his exposure to niche areas of fixed income and warned about valuations in more conventional areas.
Business Insider: – Here’s the massive disconnect between stocks and high-yield bonds that has some people predicting more pain ahead. – away from the equity markets, traders and market watchers are looking someplace else for clues on what might be next for the market: high-yield bonds.
Businessweek: – Gross exposes $42 trillion bond market’s key flaw in Pimco exit. – One man shook a $42 trillion bond market last week, highlighting just how vulnerable bond prices are to shocks.
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.
Bloomberg: – Treasuries gain on yield appeal amid bets growth slowing. – Treasuries gained the most in more than month as yields higher relative to most Group of Seven nations increased demand from investors worldwide concerned global growth is stalling.
Investment Grade Bonds
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.
High Yield Bonds
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: – Junk bond recovery seen after biggest quarterly slump since 2011. – High-yield bond investors, smarting from the biggest quarterly losses since 2011, are forecasting a turnaround by the end of the year as depressed prices and low default rates lure back buyers.
Bloomberg: – Zebra ends lull in junk bond market after Gross exit. – Zebra Technologies Corp. (ZBRA) broke the lull in junk bond issuance this week after the market was rattled by bond king Bill Gross’s departure from the company he founded.
S&P Capital IQ: – High yield bond prices see largest trading slide in 15 months. – The average bid of high-yield flow-name bonds dropped 68 bps in today’s reading, to 100.9% of par, yielding 6.94%, from 101.58, yielding 6.7%, on Sept. 25, according to LCD. It was a broad-based decline, with 13 of the constituents in the red, against two small gainers.
Businessweek: – Junk bond recovery seen after biggest quarterly slump since 2011. – High-yield bond investors, smarting from the biggest quarterly losses since 2011, are forecasting a turnaround by the end of the year as depressed prices and low default rates lure back buyers.
FT: – Junk bond investors wary of US October ‘jinx’. – (Subscription) October is known on Wall Street as the “jinx”, with many traders and investors relieved to see the month behind them thanks to its fraught history.
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.
FT: – Carry trade and junk bonds feel the squeeze. – (Subscription) Extreme bets on high-yielding currencies have been knifed by the stronger greenback.
Citywire Global: – Absolute return bond chief: How to play ECB vs. Fed policies. – Absolute return bond chief Alex Johnson has increased his short duration position in the US and long duration exposure in Europe to capitalise on the divergent paths followed by the ECB and the Federal Reserve.
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.
WSJ: – New Pimco captain’s style: More teamwork, fewer TV Cameras. – Few people can fill Bill Gross’s shoes. Daniel Ivascyn isn’t going to try. Mr. Ivascyn, who was named Pacific Investment Management Co.’s group chief investment officer last week after Mr. Gross abruptly quit, said he is still sitting among his colleagues in the middle of the trading floor, rather than at the head of the room where Mr. Gross sat.
MoneyBeat: – Investors fleeing Pimco park money in bond ETFs—for now, at least. – Bill Gross’ abrupt departure from Pacific Investment Management Co. is turning into a bonanza for index-tracking exchange traded bond funds.
ETF Trends: – ETF building blocks for a core bond portfolio. – Still reverberating in the fixed income world is last Friday’s news that Bill Gross has departed PIMCO, the bond house he founded, for Janus Capital (NYSE: JNS). Not surprisingly, the news of Gross’ acrimonious departure from the company he built has stoked talk of redemptions at PIMCO ETFs. But investors looking for other fixed income pastures have plenty of other exchange traded funds to choose from.
Kiplinger: – A timely look at unconstrained bond funds. – Bill Gross leaves Pimco to run one of these invest-anywhere funds for Janus. Wise move or folly?
The yield on the 10-year US Treasury is having its largest single day drop (-8.4 bps) in yield since March 13th.
— Bespoke (@bespokeinvest) October 1, 2014
Jeffco BK appeal granted. Judge: some parts of POA conf may be impossible to reverse but ceding future auth to set rates, isnt one. Via BB — MuniCredit (@MuniCredit) October 1, 2014
Strength in bonds doesn’t bode well for stocks.
— Ed Bradford (@Fullcarry) October 1, 2014