ISM Data Sends Treasuries Tumbling and Today’s Other Top Stories

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Treasury bonds got off to a bad start following the Labor day weekend after an unexpectedly strong reading on manufacturing-sector activity.

The Institute for Supply Management (ISM) said that its manufacturing index rose to 59.0 in August from 57.1 in July. Beating estimates of 56.8 from economists surveyed by the Wall Street Journal, marking a 15th straight month of expansion in the manufacturing sector.

The news sent the 10-year Treasury bond down 18/32 in price on the day, per Tradeweb data, lifting its yield to 2.410%. The 30-year bond is down 1 14/32 to yield 3.159%. The 2-year note’s yield has ticked higher to 0.52%.

The mid-morning move comes after Treasury bonds had already weakened overnight, having continued their recent trend of seeing significant overnight price moves as Treasuries increasingly track moves in European sovereign bonds.


Todays Other Top Stories

Learn Bonds

LearnBonds: – The Japanification of the U.S. bond market. – For nearly six years, the federal funds rate has remained close to the zero-bound.  During that time, benchmark bond yields have remained at or near historically low levels.  Despite five years of improving economic data, the Federal Reserve has still refused to raise its target rate.  The reason for this is that the U.S. economy is structurally weak and highly dependent on cheap financing and rising asset prices to spur the little growth it currently has.  The U.S. bond market is living through an experience similar to Japan’s.


Municipal Bonds

WSJ: – Mow-down in Motown. – Bond insurers have a good case against Detroit for unfair treatment in bankruptcy.

Reuters: – New borrowing drags down U.S. municipal bond sales in August. – Issuance of U.S. municipal bonds edged down last month as new borrowing saw the slowest August in 17 years, Thomson Reuters data released on Tuesday shows.

Zacks: – Municipal bonds to lose liquid-asset status? 2 banks to avoid. – According to a Bloomberg report, municipal bonds may no more be part of banks’ easily sellable assets following a ruling on Sept. 3. Regulators, which include the Federal Reserve, are likely to approve a final liquidity rule next week that will exclude the said asset class from bank’s easily sellable assets. This may be a huge move as its effects will be on banks, municipal bodies and definitely investors of these bonds.


Bond Market

Barron’s: – Bondholders, fasten your seat belts.(Subscription required) Bond prices have defied expectations and risen this year, but investors should brace for significant volatility ahead. Consider moves to cash.

A Few Dollars More: – Whats up with bonds? – At the beginning of the year Wall Street was certain that interest rates were on their way up. Investors dumped all kinds of bonds anticipating that prices would plummet.  Bond prices did the upset. Go figure.

FT: – U.S. bonds are tracking ECB policy. – The link between U.S. monetary policy and US bond yields has fallen apart this year, showing how fears of deflation in Europe are driving global financial markets.

Reuters: – U.S. inflation bonds back in vogue. – U.S. investors are back in the hunt for inflation protection for the first time in two years as rising housing costs – particularly for rent – suggest inflation may finally be waking from its post-recession slumber.

Bloomberg: – Los Angeles Harbor selling most bonds in five years. – The Los Angeles Harbor Department, which runs the busiest container port in the U.S., is selling about $340 million of debt, the most since 2009, after the risk of a crippling strike was reduced by a tentative agreement on health-care costs between longshoremen and shippers.

David Beckwith: – Another bond market conundrum? – Is the U.S. economy in the midst of another bond market “conundrum”? The last time we had one was in 2005 when former Fed chairman Alan Greenspan became perplexed over long-term interest rates failing to rise with the tightening of monetary policy. Some observers see something similar happening today.

Bloomberg: – Welcome back: Your bond market changed while you tanned. – U.S. bond investors who think the market looks about the same as it did three months ago, before summer vacations started, may want to take a closer look.


Treasury Bonds

Bloomberg: – Treasuries decline as economists say manufacturing, jobs grew. – Treasuries fell, after posting the biggest rally in seven months in August, before reports this week that economists predict will show U.S. manufacturing and employment expanded.

Money News: – Large speculators turn bullish on 10-year notes. – Last week’s Commitment of Traders report showed that the large speculator group is net long the 10-year Treasury Note futures for the first time in more than a year.

Zacks: – August ETF asset report: Treasury bonds prevail. – The ETF industry saw solid asset growth in August as the U.S. market saw a winning rally following a slump in July. In fact, August saw investor interest both in stocks and bonds.   Certain global events at the end of the month had a last-minute impact on the monthly asset report and could prove to be game changers in the months ahead.


Investment Grade Bonds

Charles Schwab: – Investment-grade corporate bonds delivering strong returns. – Falling Treasury yields have helped push the total return on the Barclays U.S. Corporate Bond Index to 6.6% so far this year, above most other types of fixed-income investments.

FT: – Low rates spur U.S. corporate debt sales. – Sales of highly rated US corporate bonds are expected to pick up sharply during September as global companies take advantage of low borrowing costs and look to fund acquisition activity.


High Yield Bonds

The Seattle Times: – Investors in junk bonds see value in buying low. – Just because yields on speculative-grade debt are falling toward the lowest ever, that’s not a good enough reason to avoid it, JP Morgan Asset Management’s chief investment officer says.

CNBC: – CNBC | High-yield bonds are not in bubble territory: Pro. – Mark Okada, Co-Founder & CIO of Highland Capital, explains why investors need not be worried about the recent outflow from high-yield bond funds.

Citywire: – JPM bond star Stealey cuts U.S. bets to pile into Europe. – JP Morgan Asset Management’s Iain Stealey has made a significant rotation out of US debt and moved into European equivalents, the Citywire A-rated manager has revealed.


Emerging Market

SAXO Bank: – Emerging from a crisis, why you need EM in your portfolio. – Just a few months ago, as Fed policy changed, Emerging Markets were plunged into what many called a crisis, now we’re seeing signs of recovery.


Catastrophe Bonds

Business Recorder: – Insurers can withstand $100 billion natural catastrophe. – The growing market for catastrophe bonds has bolstered the insurance industry to the extent it could cope with a $100 billion disaster.


Investment Strategy

Forbes: – Full circle in 8 months: Now is the time to sell bonds. – Serendipity has struck. August’s bond market rise, especially this past week, has provided an outstanding opportunity for selling bonds and bond funds. The source of this happy situation? Ironically, it’s the growing expectation of the Fed allowing short-term rates to rise – the very action long expected to drive bond prices down.

Hawk Invest: – Here’s an ideal way to earn high yields and prepare your portfolio for rising rates. – Investors should consider preparing their portfolios now by seeking investments that can outperform in a rising rate environment. Higher-yielding, floating rate securities appear to be a very attractive investment for income investors to consider now.

Barron’s: – The cash conundrum. (Subscription required) With interest rates likely to rise, you’d think the outlook for your money-market mutual funds would be improving. You’d be wrong. Here are better alternatives.

Kiplinger: – 3 Reasons investors should ignore the doomsayers. – The global and U.S. economies aren’t as feeble as many of the scarier headlines proclaim.

Seacoast Online: – When rates rise: Bonds or bond funds? – Today’s low interest rate environment has bond investors wondering how best to position themselves for the day when rates finally turn course and move higher. It is an inescapable fact that, when rates do rise, the value of a bond investor’s current holdings will fall. To avoid seeing such losses, many investors question whether it is better to hold individual bonds rather than bond mutual funds.

Barron’s: – His own ladder of success. (Subscription required) It’s hard to believe that Bob Waldele — head of a Merrill Lynch team that manages $2.1 billion from 40th floor offices in the World Financial Center — once had to hustle for clients.


Bond Funds

FT Adviser: – Greg Hopper takes on the Swip high yield bond fund. (Subscription Required) Aberdeen’s head of global high yield Greg Hopper has taken on the management of the £1.7bn Swip High Yield Bond fund.

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