Investors took refuge in the relative safety of government bonds on Wednesday, following the release of weak U.S. consumer spending report.
Following this mornings release the yield on the 30-year Treasury bond hit a record low and the yield on the benchmark 10-year note fell to the lowest level since May 2013. Bond prices rise as yields fall.
Global bond prices were also hit with yields on 10-year government bonds in Japan, Germany, France and Switzerland all falling to record lows. While the yield on the 10-year U.K. government bond declined to its lowest level since 2012.
The latest leg of the rally in the bond market underscores growing concerns among investors over an uncertain global growth outlook and the risk of deflation especially in Europe amid tumbling crude oil prices. Trading in many markets has been volatile lately, a sign of investors’ anxiety which added to the allure of holding ultrasafe U.S. government bonds.
Todays Other Top Stories
Learn Bonds: – The agnostic bond ladder strategy might be best. – For the conservative bond investor simply looking for a cash flow stream, I would argue that it makes little sense to churn a portfolio based on interest rate speculation. Creating a bond ladder that totally takes bond prediction out of the equation, or making point in time purchases with an attempt to buy the “sweet spot” of yield, are far more conservative and arguably, rational, ways to buy bonds.
Bond Buyer: – Defaults reached record in 2014. – Municipal bond defaults increased to record levels last year, as Detroit’s bankruptcy boosted the total.
InvestorPlace: – 4 Municipal bond ETFs to buy today. – Facing higher taxes? Then you need a dose of municipal bond ETFs.
Bloomberg: – Puerto Rico facing debt risk beyond power utility. – A potential restructuring of Puerto Rico power-utility debt may fail to shield other commonwealth bonds from a similar outcome.
Intelligent Investing: – Muni bond manager’s journal: Biting into the credit donut. – My team and I were finalizing a presentation to investors and trying to come up with a way to express the credit-driven nature of the municipal bond investment process. The continuous circle seemed like the best way, since the seven components were interdependent—what happened with one affected another.
Business Insider: – Jeff Gundlach unveils his outlook for 2015. – Among the things Gundlach believes 2015 has in store for the market is more volatility, lower Treasury yields, and a Federal Reserve rate hike, “just to see if they can do it.”
Reuters: – Oil fall could lead to capex collapse-DoubleLine’s Gundlach. – DoubleLine Capital’s Jeffrey Gundlach said on Tuesday there is a possibility of a “true collapse” in U.S. capital expenditures and hiring if the price of oil stays at its current level.
WSJ: – Regulators want data on bond-trade fees. – SEC, others scrutinize markups paid by retail bond investors.
BusinessWeek: – No relief as shrinking repo leaves bonds exposed. – Bond investors are bracing for another year of reduced liquidity and the potential for violent swings as a key part of U.S. debt markets that expedites trading of everything from Treasuries to junk bonds shrinks further.
Reuters: – Fed’s Kocherlakota ‘uneasy’ about low longer-term rates. – A top Federal Reserve official said on Tuesday he was “uneasy” about the low long-term yields on Treasury bonds because it shows there are fewer safe assets for investors and it suggests rates could be persistently low in the future.
Bloomberg: – Demand at U.S. 10-year note sale below average on low yields. – Demand at the Treasury’s $21 billion auction of 10-year notes fell below average as yields at the lowest level since 2013 initially deterred investors with the Federal Reserve preparing to raise interest rates this year.
Bloomberg: – Treasury bond yield drops to record low amid fear of global deflation. – Treasury 30-year bonds yields fell to a record-low 2.39 percent as the collapse in oil and commodity prices fueled speculation the global economy may fall into a deflationary spiral and stifle growth.
Investment Grade Bonds
FT: – High-grade energy bonds embark on rally. – (Subscription) Bonds sold by some of the world’s largest energy companies have appreciated in value this month as investors look beyond sliding oil prices and focus on a buying opportunity in the sector.
High Yield Bonds
S&P Capital IQ: – High yield bond prices continue upswing amid broad market gains. – The average bid of LCD’s flow-name high-yield bonds advanced 79 bps in today’s reading, to 99.82% of par, yielding 6.35%, from 99.03, yielding 6.61%, on Jan. 8. Gains were widespread, with 10 of the sample’s constituents in the black, against three unchanged, and two modest decliners.
Econ Guru: – Junk Bond: How risky investment built Las Vegas. – Las Vegas was not always the investor-owned entertainment venue it is today. Prior to the 1970s, most of the valuable property in the city was built and maintained by organized crime. It was not until the 1970s, and creative investors such as Steve Wynn, that Sin City began saying goodbye to mobsters in favor of Wall Street investors.
WSJ: – Commercial mortgage-backed securities make comeback. – (Subscription) A hunt for yield and a gradually improving property market are bolstering a key engine of U.S. commercial property lending, helping borrowers to refinance but also reigniting fears the market is getting overheated.
Market Realist: – The link between oil prices and high yield bond yields. – With all the hype around high yield bonds these days, how do investors know whether the asset class is right for them? Matt Tucker takes a step back to look at the considerations for investing in high yield, as well as the role these bonds should play in a portfolio.
ALT Energy Stocks: – A flurry of green muni bonds. – Green municipal bonds are set to take off in 2015 after a flurry of issuances in the latter half of 2014. With interest rates at an all time low, this is the time to finance the vast backlog of infrastructure upgrades and developments needed – and to green that infrastructure. This, according to the Financial Times, is especially so in the US.
Business Green: – Green bond market hits record $36.6bn in 2014. – Analysts says growing momentum and entrance of new issuers could push market to $100bn over the course of this year.
Morningstar: – Watch your step when using bond ladder ETFs. – Bond ladder ETFs can reduce cost and risk and can increase liquidity. However, investors should be aware of some potential drawbacks.
InvestorPlace: – Here’s why you should buy bonds and energy. – Investors must not think that bad things can’t happen to the economy anymore just because of the record highs.
Zacks: – 5 Best-ranked diversified bond funds to bet on. – We 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.
Morningstar: – Dos and don’ts for combatting portfolio sprawl. – Is a portfolio clean-up on your 2015 to-do list? Here’s some top advice on getting rid of the right stuff.
ETF Trends: – The ETF income conundrum: Balancing yield and risk. – As a way to hedge the potential fallout in the fixed-income market ahead, investors are beginning to take a closer look at holdings and alternative investment options.
CNBC: – This investment strategy doesn’t work in a zero-rate world. – For the past several decades, the traditional 60 percent stock, 40 percent bond allocation has dominated the investment industry. But since 2000, interest rates have declined to historic lows at or near zero percent. While this has given bond returns an historic tailwind, it begs the question: Have bonds become an unproductive portfolio-allocation tool?
Bloomberg: – Gundlach’s DoubleLine plans its first infrastructure fund. – Jeffrey Gundlach’s DoubleLine Capital plans to start its first fund dedicated to finance projects such as bridges, roads and tunnels.
ETF.com: – Matt Hougan’s 5 ETF picks for 2015. – Each year, I pick a handful of ETFs to watch (and potentially invest in). It’s one of my favorite blogs I write each year. For one shining moment, I get to play the active manager, making long-shot bets on obscure corners of the market or highlighting ETFs that bring new ideas to the table.
Calling end of the world “Bonds have been signaling” “Oh there´s no recovery” from 1 retail number must be the ultimate confirmation bias
— Captain EvilStomper (@Makro_Trader) January 14, 2015
— Mohamed A. El-Erian (@elerianm) January 14, 2015
As normal, munis lagging USTs on the way down, but given the velocity of the move I think they’ve performed well. 30yr AAA now at 2.62%
— David Schawel (@DavidSchawel) January 14, 2015