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Wall St Wrong About Bonds Again and Today’s Other Top Stories

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Steven Major does not carry the high profile of some Wall St bond gurus, in part because he lives 3000 miles away in London.

But his low profile and Geographic location is no barrier to calling the market, something he has done correctly on many occasions. Most recently, last year when he told investors to buy U.S. Treasuries while most of Wall St said sell.

To see a list of high yielding CDs go here.

So investors should take heed, Major is defying the consensus again this year, saying bond yields will fall while Wall Street, as a whole, is still pointing the other way.

Major, the London-based head of fixed-income research at HSBC Holdings Plc, stood out for correctly predicting that 10-year Treasury yields would drop to about 2.1 percent. Others said yields would approach 4 percent.

“Some investors thought we were completely bonkers,” Major, 50, said of his 2014 call.

Now, Major says yields will keep falling, possibly as low as 1.5 percent, before turning up to end the year at 2.5 percent. Wall Street sees the market headed for a big selloff as the Federal Reserve starts raising interest rates. The median estimate of 74 forecasters in a Bloomberg survey is for 3.01 percent by year-end.

Major dismisses concerns about the Fed. Instead, he sees parallels between the weak global economy in the years immediately after World War II and the state of things today. Back then, slow growth pinned Treasury yields below 2.5 percent.

 

Todays Other Top Stories

Learn Bonds

Learn Bonds: – Debate on ECB’s stimulus continues. – All eyes are on the ECB’s Governing Council meeting scheduled next week in Frankfurt. It will be a crucial meeting on monetary policy.

 

Municipal Bonds

Income Investing: – BlackRock likes barbell approach for Munis. – BlackRock‘s municipal-bond team today points out that the muni market had a “perfectly positive” year in 2014, posting a net gain in each of the years’ 12 calendar months, while muni mutual funds were nearly perfect on a weekly basis, posting net inflows in 50 out of 52 weeks. For 2015, BlackRock says investors should adopt a barbell strategy focusing on short-dated bonds maturing in two years or less and long-dated bonds maturing in 15 to 20 years.

Market Watch: – Build America investment grade bond fund announces reorganization proposal. – Aston Hill Capital Markets Inc. (“Aston Hill”) as manager of Build America Investment Grade Bond Fund (the “Fund”) announced today that it is calling a meeting of holders (“Unitholders”) of the Fund’s Class A and Class F units (“Units”) to consider a proposal to reorganize the Fund as a open-end mutual fund.

Bloomberg: – Cash-flow crunch wanes as note sales set record low. – U.S. states and localities issued the fewest short-term notes in at least a decade in 2014, the latest sign that municipal budgets nationwide are strengthening.

 

Bond Market

FT: – Bond yields slide as oil plunges afresh. – (Subscription) As stocks wobble, so sovereign debt attracts more funds, pushing yields lower. The dollar index is up 0.3 per cent at 91.26, a fraction shy of the nine-year high touched last week.

Medium: – No growth or a fear bubble? – The most striking feature of financial markets today is low government bond yields. I’ve been staring at the charts for a while now and the more I look at them, the more I worry that one of two things is happening: either growth prospects in the developed world are the lowest they’ve been in decades or the world is experiencing one of the biggest financial bubbles in history. I’m not sure which idea terrifies me the most.

24/7 Wall Street: – Merrill Lynch 2015 outlook for stocks, bonds, energy, income, themes and more. – The strategist team at Bank of America Merrill Lynch has released its first RIC Report for 2015. While it also analyzes what didn’t work in 2014, the more important issue investors will care about is what lies ahead for 2015. Perhaps the most key point is that Merrill Lynch is not expecting any runaway rise in interest rates at all.

 

Treasury Bonds

Morningstar: – Treasury bonds rally on falling oil; strong three-year note auction. – Treasury bonds posted a broad price rally on Monday, boosted by falling oil prices and surging demand on a $24 billion sale of three-year U.S. government notes.

Zacks: – 3 Top short-term government bond mutual funds to buy now. – We share with you 3 top rated short-term government 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. To view the Zacks Rank and past performance of all short-term government bond mutual funds.

 

High Yield Bonds

Morningstar: – High-yield bonds poised to outperform in 2015. – With falling interest rates behind us, we expect the high-yield market will outperform the investment-grade market, even if we see some energy-sector defaults.

 

Emerging Markets

Bloomberg: – China plays wildcard in bets on Venezuela bond default. – For debt investors betting Venezuela will default this year as oil slumps, there is one big wildcard that threatens to sink the trade: China.

Reuters: – Troubles at China’s Kaisa mark watershed for offshore investors. – The specter of default hanging over China’s Kaisa Group, a property developer in seemingly reasonable financial health just two months ago, is forcing investors to rethink how they account for political risk when buying offshore Chinese corporate debt.

Businessweek: – McDonald’s bonds walloped in Argentina by currencies drop. – The world’s biggest franchisee of McDonald’s Corp. restaurants has seen its benchmark debt tumble since Dec. 9, when Moody’s Investors Service cut the Buenos Aires-based company’s ratings for the first time as currencies from Venezuela to Brazil depreciated. The 3 percent drop in the bonds is more than twice the average in Argentina and emerging markets.

Barron’s: – Moody’s downgrades Venezuela bonds as oil decline spikes debt default risk. – Moody’s downgraded Venezuela’s government debt Tuesday, citing the loss of oil revenue as a dire risk.

 

Investment Strategy

Benzinga: – Deutsche Bank’s 10 investment themes for 2015. – Analysts at Deutsche Bank outlined their views on ten investment themes for 2015: Including their outlook for global fixed income, emerging market debt and interest rate expectations.

Huffpost: – The Year Ahead: 5 trends that could impact your finances. – While tax-efficient investing and maxing out tax-advantaged retirement accounts should always be top financial priorities, the start of every new year means there are new financial rules and trends to consider. Here are Betterment CEO John Stein’s insights on what’s coming down the road — and how to plan for them.

MarketWatch: – Three investments to own and three to avoid in 2015. – Here are three places where I think you should and shouldn’t put your money in 2015.

Business Insider: – The Wall Street bond guru who nailed 2014 has another contrarian forecast for 2015. – HSBC’s Steven Major was one of the few interest-rate gurus to correctly forecast the fall of Treasury yields in 2014. While most of Wall Street is again forecasting rates to rise in 2015 as the Fed comes closer to raising rates, Major is predicting a plunge.

ETF Trends: – Long/short bond ETFs to hedge rate risk, generate yields. – With the threat or rising interest rates around the corner, yield investors can consider bond exchange traded funds that employ a type of long/short strategy to negate rate risk and still generate income.

 

Bond Funds

Reuters: – Pimco taps Seidner to revive unconstrained bond fund. – Pacific Investment Management Co has named Marc Seidner, chief investment officer for non-traditional strategies, lead portfolio manager of the Pimco Unconstrained Bond Fund, the firm said in a regulatory filing on Monday.

Brian Haskins: – 3 new nontraditional bond funds hit the market. – As fixed-income investors face asymmetrical interest-rate risk and other headwinds in 2015, nontraditional bond funds are looking more and more attractive. Such funds are often referred to as “go anywhere” funds, since they’re allowed to “go anywhere” in pursuit of their investment objectives. We take a look at three such funds which were recently launched.

 

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