This Week’s Top Bond Market Stories – December 28th Edition

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LearnBonds: – Short-term bonds vs. money market. – One of the drawbacks to money market funds is a nearly nonexistent rate of return.  In order to increase the returns on their investments, many investors are turning to short-term bond funds. However, short-term bond funds, are not a replacement for money market funds, but can be an excellent supplement option for investors.

LearnBonds: – Wells Fargo’s New high-yielding fixed-to-floating preferred is worth considering. – Fixed-to-floating-rate preferreds give investors the opportunity to lock in a fixed interest rate for a defined period of time, followed by a floating interest rate thereafter.  Typically, the preferred stock will switch from a fixed to a floating rate on its first stated call date. Financial Lexicon takes a closer look at Wells Fargo new fixed-to-floating-rate preferred stock.


Municipal Bonds

BusinessWeek: – Dirt bonds lead market in 2013 as housing rebounds. – Municipal debt tied to real-estate development is set to be the best-performing part of the $3.7 trillion state and local-bond market this year as an improving housing market boosts the securities’ earnings.

Cate Long: – Muniland’s ‘Best of 2013’. – 2013 was a pivotal year for municipal bonds. Here’s Cate Long with a round-up of the Good the Bad and the Ugly of muniland.

Bloomberg: – California topples New York to reclaim sales crown. – California is poised to reclaim its spot as the biggest borrower in the municipal market after an improving budget outlook propelled the state’s debt in a year when taxes rose for its wealthiest residents.

Bloomberg: – Boeing 777X exit threat leaves Washington facing bond-rating cut. – Washington faces a credit downgrade, higher borrowing costs and the loss of jobs and tax revenue should Boeing Co. (BA) decide to move production of its new 777X jetliner to another state.

ETF Daily News: – The case for municipal bond ETFs in 2014. – The municipal bond market has been hard hit this year as investors pulled their capital out of these bonds for most of the year. The Fed’s taper threat and the resultant increase in interest rates since late May largely prompted investors to avoid these plays.

Bloomberg: – California thrives as inland cities struggle. – California’s highest credit ratings since 2009 and projections of billions of dollars in surpluses mask the struggle of inland communities such as Fresno, whose bonds this month were cut to junk.

Bernardi Securities: – Will Detroit turn the muni bond market upside down? – Will the Detroit Chapter 9 bankruptcy turn the municipal bond world upside down? A random vacation photo captured this concern fairly well. With such a big question looming over the market, let’s review the ways in which the largest municipal bankruptcy in our nation’s history may set precedents for municipalities across the country.


Treasury Bonds

Business Recorder: – Treasuries outlook: yields at high end of range draw buyers. – Longer-dated Treasury debt prices rose on Friday as yields near the upper end of their recent range drew buyers and the market adjusted to the idea that the Federal Reserve would begin to trim its bond purchases at the start of the new year. In late trade, the 30-year bond rose 1-11/32 in price to yield 3.82 percent, while the US benchmark 10-year Treasury note was up 11/32 for a yield of 2.89 percent.

Reuters: – Fed’s taper portends year of the bond picker. – It’s been years since fixed income offered investors the “safe and stable” side of a portfolio, but Canadian asset managers believe the waves created by the Federal Reserve’s tapering may make investing in bonds an especially bumpy ride in 2014.


Investment Grade Bonds

FT: – U.S. corporate bonds rally on Fed taper. – High quality U.S. corporate bonds have rallied to their best levels versus Treasury yields in two years in the wake of the decision by the Federal Reserve to taper its quantitative easing policy.



Zacks: – HYLD: The best choice among high yield bond ETFs? – The year 2013 can easily be earmarked as a year of the beginning of the ‘great rotation’ – from bonds to stocks – aided by improving economic conditions especially on the domestic front made it clear that rock-bottom interest rate environment prevailing in the U.S. would not last long. If this was not enough, heightened concerns related to the scaling back of the monetary easing policies by the Fed have made overall bond investing lose its luster.

Zacks: – WisdomTree launches two high yield bond ETFs. – Bond investments have hardly seen gains in 2013 thanks to taper concerns. However, across the spectrum, the high-yield bond space has been less ruffled, with most losing marginally in the YTD frame.

Forbes: – Interesting JNK put and call options for February 2014. – Investors in SPDR Barclays High Yield Bond ETF saw new options become available this week, for the February 2014 expiration.

Yahoo Finance: – Massive upside trade in junk bonds. – One big investor is looking for junk bonds to stay strong next year even with interest rates pushing higher.

Forbes: – 2013 High yield bond issuance hits $324B, short of record $345B in 2012. – U.S. junk bond issuance in 2013 totaled $324 billion, the second-largest yearly figure ever, behind the unprecedented $344 billion logged in 2012, according to S&P Capital IQ/LCD. The high yield market ended 2013 on a relatively active note, with roughly $22 billion in volume during December.


Emerging Markets

ETF Trends: – Goldman’s discouraging view of emerging markets. – Goldman Sachs cautioned investors not to set their hopes too high for developing world equities or bonds in 2014. In a report titled “Emerging Markets: As the Tide Goes Out,” Goldman advised that investors with a “moderate” tolerance for risk reduce their exposure by one-third, from 9 percent to 6 percent of overall portfolios.

Wealth Management: – Emerging market debt’s wild ride. – In the current  low-yield environment, EMD funds have been exceedingly popular. They’ve been some of the top-performing investments in the fixed income sector over the past three and five years. The past year, however, has been a rough patch. Still, there are standout portfolios that have wrested positive returns from this very volatile market over the past 12 months.

Business Wire: – Emerging Markets bonds hold pockets of value following sell off driven by taper expectations, says market vectors’ Fran Rodilosso. – With the Federal Reserve’s (the “Fed”) decision to begin its “tapering”, the initial steps of this process could likely cause some bond buyers to dial back their risk profiles, according to Fran Rodilosso, fixed income portfolio manager with Market Vectors ETFs.


Catastrophe Bonds

Finchannel: – Record high for outstanding CAT bonds; demand to continue. – The FINANCIAL — As investor demand has continued to grow for catastrophe bonds (CAT), sponsors have been able to offer deals at considerably lower coupon rates and with increasingly favorable structures that suit individual company needs, according to Fitch ratings . As deals have leaned further in favor of sponsors, continued strong demand for a diversifying set of risks remains the key driver of the thriving CAT bond market.

Artemis: – Investor demand for catastrophe bonds to remain strong in 2014: Fitch. – After a bumper 2013 of issuance in the catastrophe bond market, with the volume issued reaching the second highest level ever recorded, investor demand for cat bonds is expected to remain strong in 2014, according to Fitch Ratings.

Artemis: – Tradewynd catastrophe bond benefitted from modelling disclosure. – RMS, one of the world’s leading catastrophe modellers, states that it has pioneered a new approach to modeling indemnity catastrophe bonds, through its work with AIG and Swiss Re on the recently completed Tradewynd Re Ltd. (Series 2013-2)deal.


Bond Funds

Aleph Blog: – What are safe assets? – At a time like this, where can your assets be safe?  Bond interest rates are low, and don’t reflect the risks.  Stocks have high valuations, and I invest in the few stocks with low valuations.  The alternative is to earn nothing in cash.  At present, that is the safest option, and may return the best over the next year.

About.com: – 2013 ETF flows reveal bond investors’ costly education. – One unfortunate outcome of 2013′s bond market downturn is that many investors learned about interest-rate risk the hard way. After a 32-year bull market in bonds, some investors may have lacked a full understanding just how specific investments would be hurt by rising yields.

FT: – Outlook for U.S. bonds clouded by taper trajectory. – After enduring their first negative year in more than a decade, US bond investors face further challenges in 2014 as the Federal Reserve starts retreating from its era of easy money.

Morningstar: – You wanted Bill Gross? You got him. – On Dec. 5, 2013, PIMCO announced that skipper Chris Dialynas will begin a sabbatical in March 2014 (likely for a year) but that he would immediately depart this fund. His replacement is Bill Gross.

Money Marketing: – Bond fund outflows at six-month high on tapering shock. – Investors across the globe withdrew money from bond funds at their fastest pace in six months ahead of the news that the US Federal Reserve will scale back quantitative easing.

IndexUniverse: – 3 Best-performing fixed-income ETFs of 2013. – This year has been a very challenging one for bond investors, with compressed rates pressuring income potential, and monetary policy casting a shadow on long-dated debt.

WSJ: – How crisis strengthens Europe’s bonds. – Markets are in a constant state of flux. But they are also driven by long-term structural forces that end up producing lasting change. In Europe, the corporate bond market has been undergoing a quiet revolution ever since the global financial crisis hit.


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Simon G

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