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Treasuries rose on Monday ahead of this weeks crucial Federal Reserve meeting in which it is widely expected that the Fed will end bond its purchase program known as QE and move into an extended period of low rates and forward guidance.
Despite dovish comments from St Louis Fed president James Bullard, last week. The consensus remains that the Fed will follow through with its timetable and end the asset purchasing programme on Wednesday as planned.
To see a list of high yielding CDs go here.
But with no press conference scheduled, it will fall to the statement to give further guidance. The Treasuries market expects “the considerable-time language to be retained,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “The data has been consistent with a sideways muddling recovery rather than any acceleration that would risk price inflation.”
There’s about a 65 percent chance the Fed will increase its target to at least 0.5 percent by December 2015, futures data compiled by Bloomberg show. The central bank has held its short-term interest-rate target at zero to 0.25 percent since December 2008.
During today’s session the benchmark 10-year yield fell one basis point, or 0.01 percentage point, to 2.26 percent as of 2:23 p.m. New York time, according to Bloomberg data. It rose to 2.30 percent earlier, approaching a three-week high. The price of the 2.375 percent note due in August 2024 was at 101. Ten-year notes fell last week for the first time since mid-September.
Two-year yields dropped one basis point to 0.38 percent. The Standard & Poor’s 500 Index lost 0.2 percent after the gauge rallied 4.1 percent last week.
Todays Other Top Stories
Learn Bonds: – What bond investors need to know about gold. – A few weeks ago, an opinion piece by Alan Greenspan, former Chair of the Board of Governors of the Federal Reserve System, appeared on ForeignAffairs.com. The piece is entitled, “Golden Rule – Why Beijing Is Buying,” and, while the title disguises it as a short essay on China’s relationship with gold, in reality, there are other, more important considerations worth pointing out.
Barron’s: – Seven lessons from Detroit’s bankruptcy for muni investors. – (Subscription) Bank of America Merrill Lynch municipal research strategists Philip Fischer, Yingchen Li, Emily Korot, and Celena Chan look at how the landmark case has treated Detroit’s various creditors. BofA examines how the case might set precedents for future muni bankruptcies (given that they’re much more rare than corporate bankruptcies) and comes up with seven key take-aways for muni investors.
The Hill: – Puerto Rico needs a financial control board. – A renewed slide in investor confidence, on the heels of worsening economic and budgetary trends in Puerto Rico, raises the specter that in the absence of enlightened political leadership in San Juan, the U.S. Congress may soon have to establish a federal oversight board to manage the Commonwealth’s grave fiscal situation.
Bloomberg: – SEC’s cross says shine a light on tax-free market: Muni credit. – John Cross says it’s time to bring the individual buyers who dominate the $3.7 trillion municipal-bond market out of the dark.
Barron’s: – Proceed with caution on munis. – (Subscription) munis have gained 8.2% already this year, and long-dated munis are up an astronomical 14%, according to S&P Dow Jones Indices. Just about everyone still expects interest rates to start rising at some point soon, even after rates have stubbornly done the opposite this year. Might it really be a good time to sell?
Bloomberg: – Build America mutual hires former Bear Stearns muni head Keating. – Build America Mutual Assurance Co. has hired Daniel Keating to help win business, as municipal-bond insurers add staff with the backing gaining popularity.
S&P Dow Jones: – Muni Minutes – A changing of the seasons. – Following in suit with the colors of the trees, investor sentiment appears to be cycling. While the market may not be trading high-yield junk for investment-grade positions as quickly as New Yorkers are trading in their flip-flops and shorts for scarves and umbrellas last week, market demand has shifted in October.
Think Advisor: – Looking under the hood of alternative bond funds. – A key reason for the appeal of many alternative bond funds is the fact that their flexible portfolios may offer more protection and steadier total returns in a rising interest rate environment than traditional bond funds.
MarketWatch: – For the bond market, QE was so last year. – The Federal Reserve is set to wave goodbye to its bond purchase program on Wednesday, but bond traders said farewell a long time ago.
Pragmatic Capitalism: – Thinking about bond bubbles. – A little over four years ago it was very popular to declare that the US Treasury Bond market was a “bubble”. A number of high profile people made that prediction including Jeremy Seigel, Nassim Taleb and many others. Even Warren Buffett was hinting at a bubble. There were also many of us who said, quite loudly, that this was erroneous thinking. So who is right?
Metro West: – Don’t be nervous about bonds. – Bond investors have been a nervous bunch lately. Is there really anything to be nervous about?
MarketWatch: – More QE is just a matter of time. – Back in mid-August, I wondered if the Fed would be forced to do another round of quantitative easing (QE). Now I am reasonably sure that this will happen — in time. Let’s consider why.
Bloomberg: – Treasury liquidity squeezed as dealer shut off machines. – It was still early in the New York trading day on Oct. 15 and investors were already pouring into U.S. government bonds as global financial markets from Asia to Europe buckled. Because yields were falling so fast, Comiskey, the head Treasury dealer at Bank of Nova Scotia, realized that he ran the risk of being stuck with losses or unwanted inventory if his computers automatically generated quotes to buy and sell with customers.
Zacks: – 5 Zacks ranked #1 government bond mutual funds to buy now. – Conservative investors prefer debt instruments not only because they safeguard the capital invested but also for the regular income flows they provide. Bonds bring a great deal of stability to an equity-heavy portfolio while providing dividends more frequently than individual bonds. U.S government bonds mutual funds usually invest in Treasury bills, notes and securities issued by government agencies. They are considered to be the safest in the bond fund category and are ideal options for the risk-averse investor.
Bloomberg: – Moody’s ‘strong’ debt pipeline augurs another record year. – Moody’s Investors Service (MCO) just gave investors a bullish sign that U.S. corporate-bond sales will finish 2014 with a third straight record.
WSJ: – Moody’s financial chief says highly rated corporate debt has bounced back. – (Subscription) A top Moody’s Corp. executive said the market for highly-rated corporate debt has bounced back after a slowdown last week amid wild downturns in the stock market.
Morningstar: – Corporate bond market rebounding. – The corporate bond market stabilized and credit spreads recaptured some of the widening they suffered in the first half of October. As the stock market bounded some 4.1% higher last week, lower-rated bonds outperformed the broader market. While the Morningstar Corporate Bond Index tightened only 1 basis point to +125, the BBB- tranche of the index tightened 5 basis points. Even further down the quality spectrum, in the high-yield space, the Bank of America Merrill Lynch High Yield Master II index tightened 30 basis points to end the week at +438.
High Yield Bonds
WN.com: – The junk bond plunge we’re witnessing looks a lot like something we saw in 2004. – The high-yield sell-off during the third quarter follows the pattern seen in 2004. After the Federal Reserve first signaled a withdrawal of accommodation in 2004, the Credit Suisse High-Yield Index fell in the 20 weeks leading up to the June hike before resuming its bull run through the end of the year. This year, prices fell in the months leading up to the October end of quantitative easing, which marks the start of less accommodative monetary policy. If history repeats itself, high-yield bond prices should rebound in the fourth quarter.
Bloomberg: – Junk market stressed by Fed stress test as banks cut debt. – When the Federal Reserve examines the trading books of the world’s largest banks, regulators may find surprisingly little exposure to one risky market: junk bonds.
Forbes: – Richard Lehmann’s 6% solution: Finding gems among junk bonds. – Richard Lehmann, President of Income Securities Advisor, recently sat down with me to discuss the muni bond minefield, smart strategies for high-yield and why you’re better protected owning a gun than gold. A transcript and video of our conversation follows.
MarketWatch: – Is cash trash or junk’s rally a flash? – One of the hallmarks of any decline in equities this year has been a break, followed by a rally to new highs. Junk debt has tended to do poorly into those corrective junctures, ripping back as risk sentiment improved with high yield being snapped up by money desperate for yield. I believe all cash is trash in the eyes of most people when it comes to markets, given central bank stimulus and the perception that there is no other place to generate longer-term sustainable returns.
Bloomberg: – ETF money flows into emerging markets first time in four weeks. – Money flowed back into U.S. exchange-traded funds that invest in emerging-markets after three weeks of withdrawals.
Bloomberg: – Rousseff losing bond investors as downgrade to junk looms. – The stagnant Brazilian economy and soaring inflation that almost cost President Dilma Rousseff her re-election bid yesterday haven’t pleased bondholders.
Daily Finance: – High rates make SolarCity bonds shine, but beware the clouds. – In recent years, people who need to earn income from their investments have faced a dilemma. Low interest rates have crushed returns on traditional safe investments like bank savings accounts and certificates of deposit, making it tough to make ends meet with a conservative portfolio. To get better yields, some used more aggressive investments like dividend stocks to get the cash they need.
ETF Trends: – Government bond ETFs remain the safer play. – In an attempt to hedge risks associated with a struggling Eurozone and potential Federal Reserve policy changes that could weigh on corporate earnings, corporate bond portfolios have increased U.S. government debt allocations by 15% this year through September, compared to a 6.5% rise for the same period last year, reports Tim McLaughlin for Reuters.
Globe and Mail: – Three strategies for weathering stormy markets. – These three strategies are key to navigating your way safely through stormy market weather. Over the next few years, they will be more important than ever for the simple reason that returns are likely to disappoint.
Investment Week: – How wealth and multi-asset managers are playing a volatile October. – Asset allocators had a torrid time earlier this month as the FTSE slumped below 6,100 for the first time since spring 2013. Here five wealth and multi-managers reveal how they responded.
Investorplace: – Your 10-minute retirement portfolio. – Okay, that title isn’t completely serious. I don’t really expect you to wrap up all your investment planning for retirement in the next 10 minutes. However, I’m wielding a sledgehammer to help you shake loose one of your nagging fears. Getting your money in shape for retirement isn’t as hard as you may think.
Investment Week: – Buyers prepare for strategic bond fund resurgence as volatility returns. – Diverging fortunes for government bonds and credit in recent weeks have prompted some fund buyers to suggest strategic bond portfolios could flourish again in the coming months.
Wealth Management: – NextGen bond managers. – Superstar bond fund managers with many decades of experience may grab headlines regardless of performance, but there’s another generation of younger fund managers coming up in the ranks who are quietly turning in solid results without the hype.
Daily Herald: – What to expect from your bond mutual fund. – It’s important for anyone moving into bonds to keep expectations in check following their decades-long run of strong returns. Yields are lower, risks are higher and it may be difficult for bonds to replicate the returns they’ve produced this year. Here’s a look at what to expect.
I do not view November as the ‘end of QE” … it is more like the clearing of the dishes. The marginal change is essentially 0 already.
— Bob Brinker (@BobBrinker) October 27, 2014
ECb confirms it leaked the covered bond number earlier: ECB SAYS EU1.7 BLN OF COVERED-BOND PURCHASES SETTLED LAST WEEK
— zerohedge (@zerohedge) October 27, 2014
LOW RATES: Bear market in bonds a story for the next decade, not this one….Fed won’t lift interest rates until 2016 or later- @ScottMinerd
— Sara Eisen (@SaraEisen) October 27, 2014