Treasury Yields Tumble on Growth Fears and Today’s Other Top Stories

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Treasury yields plunged Wednesday as investors sought safety from uncertainty across financial markets over the outlook for global growth.

The yield on the 10-year Treasury note fell to 1.96%, the lowest since June 2013, with the yield on 30-year Treasuries fell below 3%, to 2.82%.

Investors flight to safety is being driven by a deceleration in the global growth outlook, along with the threat of Ebola, combined with strong oil supplies,

The specter of deflation is also haunting the markets. Oil prices have plunged to four-year lows on lower demand and bountiful production. The implied inflation rate for the next 30 years, based on 30-year Treasury Inflation Protected Securities, is just 2.09%. For the next 10 years, the implied inflation rate is 1.85%.

The plunge in bond yields means that the Federal Reserve could delay raising rates until late in 2015, and could even be tempted to embark on another stimulus program. From the Fed’s point of view, an outburst of inflation would be far easier to combat than widespread deflation. The Fed can attack inflation by raising rates, but it has little room to push rates down further.


Todays Other Top Stories

Learn Bonds

Learn Bonds: – Volatility in stocks means value in bonds. – While most investors may see little value in bonds, I continue to believe that if a sharper sell off than one might expect hits stocks, the value in having a portion of one’s portfolio allocated to bonds will become very apparent.


Municipal Bonds

Reuters: – UBS to pay $5.2 mln in settlement with Puerto Rico regulator. – A UBS AG unit will pay $5.2 million in a settlement with Puerto Rico’s financial institutions regulator over the firm’s practices involving sales of Puerto Rico closed-end bond funds whose values later plunged.

Bond Case Briefs: – Monoline insurers ‘could reach 10%’ of muni market again – Citi. – Like bison on the Great Plains, monoline insurers used to roam in great numbers across the muni-bond landscape. Then the financial crisis hit and monolines nearly went extinct. But now they’re on the rebound, and though far less abundant than they were a decade ago, they soon could climb back to relevance in the muni market.

Bloomberg: – Emanuel plan avoids tax increase amid pension woes. – Chicago Mayor Rahm Emanuel is preparing his 2015 budget with an eye on winning over dissatisfied voters while bolstering the city’s standing on Wall Street.


Bond Market

Reuters: – Oil crumbles, bond prices up on economy fears. – Brent crude prices marked their biggest decline in more than three years on Tuesday and U.S. and German debt attracted buyers on lingering anxiety over world economic growth.

About.com: – Why Fed policy won’t matter for the markets in 2015. – There are rarely any “sure things” in the financial markets, but the likelihood of a U.S. Federal Reserve rate increase in 2015 is fairly close – or at least that’s the conventional wisdom. At this point, however, it’s necessary to have a clear sense of the reasons why the Fed is likely to raise rates if it indeed goes through with its current plan.


Treasury Bonds

FT: – Bond yields plunge on growth fears. – Simmering uncertainty across financial markets over the outlook for global growth boiled over on Wednesday, briefly driving the 10-year US Treasury bond yield below 2 per cent and pushing the S&P 500 index beneath the level at which it started the year, before some signs of stability began to emerge.

Market Oracle: – Inflation, deflation, and our very confident bet in T-Bonds. – I’ve been touting the ongoing bull market in T-Bonds as one of the best investment opportunities of our lifetime – a no-brainer, as far, as I can recommend.  About the only way this bet can lose is if inflation returns with a vengeance.


Investment Grade

WSJ: – Watch corporate bonds for clues to markets’ meltdown. – The reversal in markets in October has been sharp. But is it the start of something more sinister, or is it just a scare? Investors should watch the corporate bond markets for an answer.


High Yield Bonds

StackStreet: – Vulnerable high yield bonds fall in price prior to spike in defaults. – Many market prognosticators are calling for significant spikes in the US corporate high yield default rate, starting in 2016 and likely sustaining to 2018-2020.  Does that mean that we should try to time being short closer to 2016?

Bloomberg: – Dynegy’s $5.1 billion bonds withstand junk debt upheaval. – Power producer Dynegy Inc. (DYN)’s $5.1 billion of debt sold last week is offering a ray of hope for junk-bond investors facing their biggest slump in more than a year.

Bloomberg: – Oil and junk don’t mix as worst bonds sink as much as 19%. – If you’re wondering why junk bonds keep selling off, consider this: Oil prices are tanking and energy companies now account for a record proportion of the below investment-grade market.

Reuters: – Prudential’s Greg Peters says firm has been purchasing high-yield junk bonds. –  Greg Peters, the former Morgan Stanley chief global asset strategist who sounded an early alarm about the financial crisis, said on Wednesday that the market downdraft and volatility may accelerate central bank aggressiveness, particularly in Europe and Japan.

S&P Capital Advisors: – As high yield bond mart seeks floor, opportunities emerge. – Opportunities are being presented to high-yield investors as the market seeks a floor in a fifth consecutive session. One investor says, “outside of 2009 this is the best entry point into [high-yield] in over a decade,” and is assembling a new portfolio to take advantage of the conditions.

Bloomberg: – Investors drive up bond-protection costs as sales slow. – The cost of protecting high-yield corporate debt from default in the U.S. rose to the most in more than a year as investor confidence ebbs and and new issuance shrinks.


Catastrophe Bonds

Steve Evans: – Are investors compensated for uncertainty in indemnity cat bonds? – An interesting question was raised at the recent 2014 Bermuda in Boston conference held by investment bank Macquarie, whether ILS investors are being compensated sufficiently for uncertainty in some indemnity catastrophe bonds and ILS transactions.


Investment Strategy

Citywire: – Banking and mining pair trade play pays off for €630m bond manager. – Kames Absolute Return Bond Fund manager Colin Finlayson has been using pair trades in the mining and banking sector to eke out extra alpha for the £500 million (€630 million) fund.

Intelligent Investing: – 5 discordant principles of bond investing. – In the words of Malaclypse the Younger, “All statements are true in some sense, false in some sense, meaningless in some sense, true and false in some sense, true and meaningless in some sense, false and meaningless in some sense, and true and false and meaningless in some sense.”

Investment Week: – Strategic bond managers hedge against further high yield sell-off. – Strategic bond managers have started increasing their high yield hedges via synthetic exposure in anticipation of further stress in the asset class.


Bond Funds

ETF Trends: – These leveraged ETFs are burning investors. – When properly used, leveraged exchange traded funds can be potent tools. The temptation of that potency must be accompanied by the reminder that these products are best suited for active, risk-tolerant traders, something that both ProShares and Direxion, the two largest issuers of leveraged of inverse and leveraged ETFs, do a good job of explaining to investors on their web sites.

ETF Trends: – Convertibles ETF on the cheap after stocks fall. – The recent swoon in stocks has sent investors scurrying into safe-haven assets such as the U.S. dollar and exchange traded funds that hold U.S. Treasuries.

InvestorPlace: – 2 best high-yield REITs for income and growth. – Before I get to this week’s picks, I’ll address the elephant in the room: Most high-yield sectors were caught up in the recent market sell off, thanks to an overwhelming “risk off” change in sentiment. Many of these stocks are less liquid. So, if large sellers show up when the bid side of the market is soft, they will endure sharp short-term declines.

InvestorPlace: – 3 Cheap REITs with high yield. – One of the screens I perform when looking for stocks to buy is a search that gives me dividend stocks that also are cheap. The reason I’m looking for “dividend stocks”? Yes, the payout, but if a company is paying a dividend, chances are that it can afford to do so.

WSJ: – Advisers pull Pimco assets but aren’t following Gross. – Financial advisers are joining the exodus from Pacific Investment Management Co. funds in the wake of co-founder Bill Gross’s abrupt departure last month. But they aren’t following the so-called bond king to his new gig at Janus Capital Group Inc., instead investing client money in comparable drama-free funds.

Reuters: – U.S.-based taxable bond funds post $4.6 billion outflows in latest week. – Investors in U.S.-based mutual funds pulled $4.6 billion out of taxable bond funds in the week ended Oct. 8, down from the prior week’s record $21 billion outflows, data from the Investment Company Institute showed on Wednesday.

ETF Trends: – Another bond ETF struts its stuff. – 2014 has been a very good year for some marquee fixed income exchange traded funds. The Vanguard Total Bond Market ETF and the iShares Core U.S. Aggregate Bond ETF are two of the top asset-gathering ETFs this year while the iShares 20+ Year Treasury Bond ETF has surged 19% compared to a meager 2.6% gain for the S&P 500.


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