This Week’s Top Bond Market Stories – February 22nd Edition

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LearnBonds: – These 2 high-yielding preferreds are worth your attention. – If you are an income-focused investor who likes to broadly diversify your holdings across various parts of the capital structure, there are two newly issued preferred stocks of which you should be aware.

LearnBonds: – Are near-term bonds a viable cash alternative? – The options for cash are limited. Most “local yokel” banks pay around 25-50 basis points for savings accounts depending on balances, with perhaps a higher limited-term promotional rate available. One of the options that might be considered by yield starved cash investors is to shift one’s permanent cash allocation into corporate investment grade bonds with five years of maturity or less.

LearnBonds: – Changes coming in the future of bond trading. – There are changes coming in the future to bond trading.  And, the change is going to be connected with electronics.

LearnBonds: – Why you should consider utility stocks for income. – Utility stocks are one way for investors to generate income through dividends.  They are a relatively conservative investment option which still allows investors higher returns than many other types of investments.


Municipal Bonds

Reuters: – NY’s MTA sale tops light week for munis. – U.S. municipal bond sales are expected to total $2.2 billion next week, extending a run of light issuance that stretches back into the final weeks of 2013.

Businessweek: – Hedge funds said to request Puerto Rico borrow to last two years. – Hedge funds seeking to participate in Puerto Rico’s planned bond offering are asking that the commonwealth raise enough money to meet its needs for two years, two people with knowledge of the preliminary talks said.

Bloomberg: – Biggest Puerto Rico owners see rally after new deal. – The largest holders of Puerto Rico bonds are betting that a planned debt sale by the commonwealth will fuel a rally in its securities by alleviating doubts the U.S. territory can raise funds in the capital markets.

Christopher Mahoney: – What are Puerto Rican bonds worth? – How should a straight unenhanced Puerto Rican GO trade? The market says it should trade above sixty cents. I think that is way off and creates a short opportunity for the brave. I say this for three reasons.

Motherboard: – Can creationist junk bonds keep the Noah’s Ark theme park afloat? – Attendance at the Creation Museum has been steadily declining every year since its opening, and Ham’s latest boondoggle—a Biblical theme park featuring a life-size replica of Noah’s Ark called Ark Encounter—could face financial collapse if investors fail to purchase $29 million in unrated municipal bonds before construction is set to begin next month.

Income Investing: – Fitch cuts Puerto Rico sewer bonds to junk too. – After being the last of the big three rating agencies to cut Puerto Rico’s credit rating to junk this month, Fitch Ratings is wielding the downgrade stick anew today, cutting $3.4 billion of bonds issued by the Puerto Rico Aqueduct and Sewer Authority, or PRASA, to junk as well.

StarTribune: – Stadium’s bond sale generated purple buzz. – If you think the municipal bond business only gets exciting when a big issue goes into default, you need to know about the People’s Stadium bonds.

Bloomberg: – Jacksonville seeking utility payments to avoid Cut. – Jacksonville, Florida, with the third most underfunded pensions of the largest U.S. cities, is considering an unprecedented solution that may preserve its credit rating at the expense of its utility’s.

Bloomberg: – SEC proposes stricter rules on brokers. – U.S. securities regulators proposed stricter rules on brokers in the $3.7 trillion municipal-debt market designed to prevent investors from being shortchanged when trading state and local government bonds.

Barron’s: – Muni-bond fund inflows strengthen. – Flows into municipal-bond mutual funds and ETFs – a convenient barometer for investor sentiment about the muni market – strengthened in the latest week.



Market Realist: – What is the default rate and how it relates to bond and loan prices. – The default rate is a consideration for investors in municipal, investment-grade corporate, high-yield, and emerging market bonds, but it’s not relevant for U.S. Treasuries since it would be extremely rare that the federal government would default on its debt.

About.com: – Introduction to municipal bonds. – A quick primer on the municipal bond market. Aimed at novice investors, this article covers the returns and risks associated with munis as well as the different types of munis available.


Treasury Bonds

Investing.com: – U.S. 10-year Treasury note speculators added bearish positions. –  Large futures market traders added to their overall bearish positions in the 10-year treasury note futures for a fourth straight week last week, according to the latest Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) on Friday.

BusinessWeek: – Wall Street bond dealers renounce Treasuries that lure Pimco. – The world’s biggest bond dealers are showing almost no confidence in the best annual start for Treasuries (BUSY) since 2008.

Reuters: – Foreign demand for U.S. assets wanes for 2nd month in Dec. – Foreigners sold long-dated U.S. securities for a second straight month in December, selling almost all asset classes except Treasuries, data from the U.S. Treasury showed on Tuesday.

WSJ: – Top foreign holders of U.S. Treasuries cut holdings in December. – Foreign investors in December cut their holdings of long-term U.S. securities as the Federal Reserve announced plans to begin exiting its easy-money policies in 2014, data published Tuesday by the Treasury Department showed.

Market Realist: – Must-know releases that will impact U.S. debt securities this week. – One of the most important highlights this week, February 17–21, for bond markets will be the Treasury International Capital data release that tracks the inflow and outflow of funds from the United States. This is relevant because the onset of the Fed’s tapering program, combined with weakness in domestic economies, has precipitated flight-to-safety flows to U.S. debt markets—particularly Treasuries.

WSJ: – Fed minutes sting Treasury bonds. – Treasury bonds took a beating Wednesday after minutes from the Federal Reserve’s January meeting raised some anxiety that the central bank could increase short-term interest rates sooner than many expected.

MSN Money: – Long-term Treasury bonds are surprisingly hot. – Though interest rates are incredibly low, some investors are taking positions because they do not trust the economic environment that lies ahead.

Bloomberg: – Treasury yields drop from week high after home sales decline. – Treasury 10-year note yields dropped from the highest level in a week after a report showed harsh weather pushed sales of previously owned U.S. homes in January to the lowest level in more than a year.


Investment Grade Bonds

Income Investing: – Morgan Stanley: Worst is over for corporate bonds, modest gains ahead. – Morgan Stanley Wealth Management says in a new outlook report that the worst is over for corporate bond investors, and that they year ahead will offer some modest gains.

Tradevestor: – Consider Coca-Cola at 3.20% yield. – Coca-Cola reported soft 2013 Q4 number this morning, sending shares down 4% as of this writing. This presents a great buying opportunity for long term investors, as Coca-Cola now yields close to 3%.

Bloomberg: – China properties plumps for dollars as builders flock to bonds. – China Properties Group Ltd. (1838) has abandoned plans to sell yuan-denominated bonds in favor of dollar notes as the country’s developers return to U.S. currency debt markets.

Fitch Ratings: – Industrials dominate U.S. corporate bond market. – The US corporate bond market grew 9% in 2013 to $4.7 trillion in size, according to Fitch Ratings. A new report shows industrial volume surged by 10% to $3.4 trillion on very strong issuance of $647 billion during the year.

Donald van Deventer: – Hewlett-Packard Company bonds: Measuring the cost of a brand name. – Hewlett-Packard Company has experienced considerable volatility in its default probabilities in recent years, but the large drop in default probabilities since our July 15, 2013 report is a sign of significant progress. At current default probability levels, Hewlett-Packard is in the riskier half of its peers for maturities ranging from 1 month to 1 year.



Reuters: – U.S. high-yield muni bond funds lead inflows. – High-yield U.S. municipal bond funds attracted new cash for a fifth straight week even as major U.S. credit rating agencies downgraded Puerto Rico to junk status, data released on Thursday showed.

Market Realist: – Why did last week’s high yield bond issuance remain subdued? –  The credit spread between the high yield bond index and the U.S. ten-year Treasury declined 13 basis points last week. The compressed spreads reflect advanced expectations of economic improvement. While the overall bond market has dropped slightly due to expectations of increased interest rates, the high yield market drop has been offset by this spread compression.

Market Realist: – Why is the high yield bond market obsessed with refinancing? –  There are mixed feelings about the high yield bond market. Issuers still look active. However, for high yield bond investors, the increase in long-term Treasury yields may remain a concern in relation to the improved market conditions.


Investment Strategy

ETF Trends: – CEF ETFs to augment your income portfolio. – Investors looking to generate a little extra cash on the side can consider exchange traded funds that track closed-end funds.

Philly.com: – Daily Money Tip: This is a good time to take those profits. – You might not want to hear it, but it’s a good time to take profits by selling some big gainers in your portfolios – since that’s how you make money.

Market Realist: – Fed policy: A factor that pushes the yield curve upwards. – Throughout 2013, the trend in long-term interest rates was largely driven by expectations about Federal Reserve policy. As the Chairman Janet Yellen decided that the Fed would start considering “tapering” its bond purchases starting early 2014, long-term interest rates rose steeply, sending the yield on ten-year Treasury bonds up over 120 basis points, and the yield curve steepened.

Stock Traders Daily: – Bonds diverging from stocks: What gives? – Sometimes the bond market provides a read on the economy that is opposite of what the stock market offers. Today’s environment is exactly like that, and even though the stock market has rallied hard off of its January lows the bond market has not retreated at all. In fact, as investors poured money into aggressive equities, the safe haven that is U.S. Treasury bonds was also bought aggressively.

CNBC: – With bond outlook dim, investors eye alternative investment strategies. – In the aftermath of the 2008 financial crisis, shell-shocked investors did a fair amount of soul-searching with regard to stocks. These days, they are working through their angst when it comes to the bond market, which has likely come to the end of a very long bull run.

IFA: – The short-term strategy. – It might seem a little counter-intuitive to be thinking about buying into a bond fund during a year when all the signs are pointing toward rising yields and falling prices. Surely, you might suppose, the combination of the QE taper and the prospect of rising interest rates ought to have finished off what little remains of the market’s enthusiasm for debt?

WSJ: – How to prepare for Federal Reserve tapering. – Many investors worry about what will happen to interest rates and bond yields when the Federal Reserve winds down its bond-buying program. So we asked The Experts:What should investors do to prepare for the Federal Reserve tapering this year?


Emerging Markets

Bloomberg: – Emerging-market funds outflow surpass total 2013 sales. – Less than two months into 2014, global investors pulled more money out of emerging-market stock and bond funds than the total amount they retracted last year.

Reuters: – Dividends, debt and diversity drive emerging market value. – Despite the recent turmoil in emerging markets, there are strong long-term reasons why income investors should take an interest in the sector, writes Richard Titherington of JP Morgan Asset Management.

Businessweek: – Emerging markets at risk from carry trade unwinding, BofA says. – Emerging-market assets are at risk as the tapering of the Federal Reserve’s stimulus program will probably trigger a reversal of $2 trillion in carry trades, according to strategists at Bank of America Merrill Lynch.

What Investment: – How to invest in emerging market growth, without the volatility. – Investors looking to access the ‘attractive’ growth prospects for emerging markets in a way which minimises the volatility associated with the asset class should combine emerging market debt and equity in their portfolio, according to Richard Titherington, chief investment officer for emerging markets at JP Morgan Asset Management.

Smarter Investing: – Emerging market bonds yielding over 5% beckon income investors. – Emerging market bonds are paying decent yields in a low-rate environment but many investors are wary of the sector due to recent gyrations in the currencies of developing economies.

New York Times: – Global bond frenzy raises concerns. – Prospecting for oil in Brazil, manufacturing steel in Russia, erecting skyscrapers in China: Global bond investors have financed some of the grandest investment projects taken on by emerging economies in recent years. But as growth falters in a number of developing nations, economists and regulators have become increasingly worried about the consequences of this borrowing frenzy.

David Fabian: – A high-yield play on emerging markets. – No matter how you structure your income portfolio, I think it makes sense to include a position in emerging market bonds as a way to enhance your yield and seek higher returns. While there is the potential for downside risk if interest rates significantly rise or emerging markets once again experience slowing growth, I think that the risk to reward proposition is reasonable right here.

Investment News: – Emerging markets activity shows portfolio diversification key to performance. – With all the noise over rates, the economy and stock prices, don’t ignore the basics.

What Investment: – Rathbone’s Jones: I’ve returned to emerging market bonds, but I’m still cautious. – Byrn Jones, fixed income director at Rathbone Unit Trust Management, has disclosed that he has begun investing in emerging market bonds again, but believes that investors should continue to be cautious on the asset class.


Catastrophe Bonds

Artemis: – 2014 catastrophe bond maturities by peril and expected loss. – With over $4.2 billion of outstanding catastrophe bonds scheduled to mature in 2014, the insurance-linked securities (ILS) and cat bond primary issuance market will have opportunities to entice sponsors to re-issue their risks in new transactions in 2014.


Bond Funds

Stockhouse: – In the bond market, smart beats scared or oblivious every time. – Bond investors today fall into one of three categories: smart, scared or oblivious. Which one are you?

Globe and Mail: – Nine funds that combine safety and growth. – Exchange-traded funds get most of the attention these days, but mutual funds remain the predominant vehicle in Canadian wealth management. As of the end of 2013, ETF investments accounted for just 6 per cent of the $1-trillion under management in ETFs and mutual funds, according to Investor Economics.

ValueWalk: – Passive ETFs, mutual funds still have room to grow. – Thanks to low expense ratios and continued favoritism by fee-based advisors, passive investments have the potential to see higher growth, note BMO Capital Markets analysts.

WSJ: – Pimco’s Bill Gross touts merits of new leadership model. – Bill Gross has a new mantra: Pimco is better than ever. In a transcript of a question-and-answer session posted Tuesday on the company’s website, the co-founder of Pacific Investment Management Co. said again that the recent change in the asset management firm’s leadership will deliver long-term value for its clients.

MarketWatch: – Volatile market spurs stock and bond investors to act. – This twist on the usual exhortation to take action urges caution instead. John Bogle has used it to warn investors against expensive and often useless fiddling with their portfolios rather than simply sticking to their strategies.

Forbes: – Bonds: They’re not just for seniors. – So when and how should you add bonds to your portfolio? In this article, we’ll show you how investors at any stage of life can keep these fixed-income investments.

RGJ: – Investors show interest in convertible, high-yield bonds along with stocks. – As we review the bond market today, it’s no surprise that convertible bonds are leading the pack over the past week.

FT: – Investor support for U.S. bonds on the wane. – Bond market investors are a downbeat lot. They live in an asymmetric world because bonds can go down much more than they can go up. And investors in Treasury securities are the most downbeat and risk averse of all since they prize safety above all else.


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