This Week’s Top Bond Market Stories – January 11th Edition

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LearnBonds: – Long term bond funds – How to decide if they are right for you. – Long-term bond funds, can provide the types of returns that are usually linked to high-risk asset types like small-cap stocks. Often, when the returns on bonds fall, longer-term funds perform best. But what are the risks and are they right for your portfolio? Here’s what you need to look for.

LearnBonds: – Gauging your personal allocation to bonds. – While the recent perk-up of yields may be a positive development for bond investors looking for extra income, it could represent an equally concerning situation for those sitting on long duration individual bonds or bond funds. To succeed in this formidable period, each income investment should be made after careful, judicious consideration of all available options.

LearnBonds: – Want a 7% yield? you can find it here. – If you are on the hunt for yield, take a closer look at Kimco Realty’s preferred shares.  The owner/operator of North America’s largest portfolio of shopping centers has four classes of preferreds, with yields as high as 7.137%.  Here’s a closer look at Kimco Realty and its preferred shares outstanding.

LearnBonds: – The European sovereign debt resurgence. – There has been a real resurgence in the market for European sovereign debt, especially the debt of some of the “periphery” countries that have gone through financial bailouts over the past four years.


Municipal Bonds

WSJ: – Wall Street muni-bond fees shrink fourth straight year. – Fees that Wall Street charges U.S. cities and states to sell their bonds fell for a fourth straight year in 2013 as dwindling debt issuance intensified competition among banks for underwriting business.

Reuters: – U.S. municipal adviser rule unveiled; raises transaction worries. – The board overseeing the U.S. municipal bond market on Thursday proposed a strict code of conduct for financial advisers to cities and states, including a ban on their role in principal transactions – a change that has raised concerns in the securities industry.

NASDAQ: – Municipal bonds to turn around in 2014 as taxes rise and supply shrinks. – Tax free municipal bonds will shine in 2014 after last year’s tough performance as higher tax rates spur demand and overall supply shrinks, says the Robert DiMella, Portfolio Manager for the MainStay Tax Free Bond Fund.

BusinessWeek: – Curbs on muni advisers sought by regulators under Dodd-Frank law. – U.S. securities regulators are moving to tighten standards governing the conduct of advisers to state and local governments on municipal bonds under a law approved by Congress in 2010.

WSJ: – The little-known advantages of muni bond mutual funds. – Low-fee municipal bond mutual funds. Although not little known, traditionally municipal bonds have been viewed as an investment for people with high incomes. Today, the yield differential between tax-free interest income and taxable interest income benefits people in lower-income tax brackets as well.

WSJ: – Rules to curb muni-bond advisers. – U.S. securities regulators, under pressure from Congress to prevent a repeat of financial debacles in municipalities like Detroit and Jefferson County, Ala., are set to propose a series of rules to rein in advisers that help states and localities raise cash in the $3.7 trillion municipal-bond market.

InvestmentNews: – UBS Puerto Rico closed-end muni investors losing billions. – Investors in the beleaguered UBS Puerto Rico family of closed-end municipal bond funds are losing billions.

Morningstar: – Municipal bonds still worth a look. – With a tilt toward longer durations, worries over Puerto Rico, and large outflows, muni funds struggled in 2013, but they have something to offer investors, says Morningstar’s Eric Jacobson.


Treasury Bonds

WSJ: – Treasury bonds rebound from Wednesday’s selloff. – U.S. Treasury bond prices rose after Wednesday’s sell off as the benchmark 10-year yield around 3% continues to attract buying interest.

WSJ: – U.S. gets free cash in bond market for first time since September. – The U.S. government got free cash in the bond market Tuesday for the first time since September, as strong investor demand for short-term debt enabled the Treasury to sell four-week bills bearing no interest.

FT: – Federal Reserve faces prospect of bond market showdown over rates. – Bond traders are bringing forward their expectations of when the Federal Reserve will start to tighten policy, leading to a jump in short-term US borrowing costs. Recent economic data have pointed to a gathering American recovery, and could result in a showdown between policy makers and the Treasury market.

WSJ: – Treasury bonds stung by strong ADP jobs report. – Treasury bond prices fell as the latest employment report suggested U.S. economic growth is gaining steam.

Reuters: – Speculative net shorts in U.S. T-note futures grow. – Speculators’ net bearish bets on U.S. 10-year Treasury note futures grew in the latest week on worries over how quickly the Federal Reserve might pare its bond purchase stimulus, according to Commodity Futures Trading Commission data released on Monday.

Charts Etc: – Hedgers are getting long Treasury futures. – Commercial hedgers, typically the smarter money, are currently very long the UST note, attaining their highest level of long exposure in years. In the past, when their exposure has reached elevated levels (beyond 200K, green horizontal line), the UST note has more often than not responded by rallying. If that were to happen in the near future, I would expect equities to stall or retreat in kind.


Investment Grade Bonds

WSJ: – Grab for yield raises risk stakes. – Investors are still snapping up corporate bonds even as yield premiums erode quickly. European debt may still offer opportunities—but investors will have to stomach higher risk.

FT: – Companies ride global wave of bond issuance. – Global corporations are rushing to raise the first batch of funds in 2014, in a wave of new bond issuance that may push total sales in the U.S. this week over the $30bn mark.

BusinessWeek: – FedEx sells $2 billion of debt in three parts. – FedEx Corp. the world’s largest cargo airline, sold $2 billion of bonds in three parts to accelerate a share-buyback program. A gauge of U.S. corporate credit risk held at about the lowest level in six years.



Forbes: – High yield bond funds see big $642M investor cash inflow. – Retail cash inflows from high-yield funds totaled $642 million for the week ended Jan. 8, according to Lipper, a division of Thomson Reuters. This is a complete reversal of last week’s $643 million outpouring that rang in the new year.

BusinessWeek: – Toys ‘R’ Us investors show doubt of repayment. – Toys “R” Us Inc. is paying the highest yields among 16 issuers of CCC+ rated bonds as investors grow dubious the retailer with three years of falling profit will repay or refinance $2.85 billion of debt due through 2016.

Digital Journal: – AdvisorShares peritus high yield ETF (HYLD) earns 5-star Morningstar rating. – AdvisorShares, a leading sponsor of actively managed exchange-traded funds (ETFs), announced today that the AdvisorShares Peritus High Yield ETF (NYSE Arca: HYLD) has been recognized with a 5-Star Morningstar Rating™ for both its 3-year and overall risk-adjusted performances, respectively, from inception through December 31, 2013, out of four ETFs in the high yield bond category.

Safety in Value: – How to make money in junk bonds (book review). – Robert Levine wrote “How to Make Money in Junk Bonds” as an introduction to junk bonds and to provide a method for selecting junk bonds in which to invest. The book provides an introduction to credit analysis, which is drastically different than equity analysis, because the upside is capped. This is done both with parable type stories and also with direct explanations.

BusinessWeek: – Junk bond risk drops in Europe as borrowing costs fall to record. – The cost of insuring junk-rated corporate bonds against losses fell to the lowest in six years in Europe after yields on the debt dropped to a record.

MoneyMarketing: – HY set for more outperformance in 2014, says Schroders’ Sparks. – High yield looks set to outperform other fixed income assets again in 2014 although the better-than-expected returns of 2013 are unlikely to continue, says Schroders head of US fixed income Wes Sparks.


Investment Strategy

YCharts: – BlackRock bond guy: Limiting yield curve risk. – Jeffrey Rosenberg, BlackRock’s chief bond strategist says a straightforward approach to managing bond duration is not gonna cut it for 2014. While he’s on board that the specter of rising interest rates in 201 suggests one keep effective overall duration in the short end of the pool, Rosenberg points out that the 2-5 year end of the yield curve is not where you want to directly aim your portfolio. His advice: “shorten your duration…but don’t own short duration.”

InvestmentNews: – Advisers forced to be nimble as fixed-income risk climbs. – As the good old days of low-maintenance bond allocations fade from memory, financial advisers are being forced to learn how to be more creative and nimble when navigating the new reality of fixed-income markets.

MarketWatch: – How financial advisers are investing for 2014. – Divergent market moves and concerns about higher interest rates ahead are two of the factors that have propelled some financial advisers to tweak their clients’ portfolios in recent months.

InvestorPlace: – 5 Ways to survive the 2014 bond market meltdown. – If the prospect of losing up to 50% in value is scary, here’s what to do.

InvestmentNews: – It’s time to rethink bond allocations. – With bond yields near historic lows and poised for a cycle of rising interest rates now that tapering is set to begin, financial advisers might do themselves a favor by looking once again to institutional investors for guidance.

ValueWalk: – How to use bond ladders in retirement portfolios. – Should bonds be kept in mutual funds or purchased as individual securities and held to their maturity dates? The former option receives much far more attention, as managers compete in a performance-driven marketplace. But investing, especially for retirement, shouldn’t be driven by maximizing risk-adjusted returns. Advisors must focus on securing a client’s future spending needs. I will investigate the role of bond ladders in retirement and which ladder length is best for clients.


Emerging Markets

BDLive: – Decline of emerging markets greatly exaggerated. – The big U.S. financial institutions — Goldman Sachs, JPMorgan and Morgan Stanley — all have negative views on emerging markets for the year. Goldman Sachs even recommends that clients cut exposure to emerging markets by a third.

FT: – EM debt risk – the devil is in the detail. – Investors in US dollar-denominated bonds issued by emerging market corporates are worried that the greenback’s rise, together with a broad decline in EM currencies, could increase the risk of defaults on their holdings. How worried should they be?

Benzinga: – Wall Street banks turn negative on emerging markets. – Emerging markets no longer provide some of the world’s most compelling investment opportunities.

NDTV: – Emerging market investors face year mined with political risks. – As the tidal wave of global central bank liquidity recedes in 2014, emerging market investors are growing more anxious about local political risks – and how to spot them early on.

SFGate: – Goldman to JPMorgan say sell emerging markets after 2013 tumble. – Wall Street’s biggest banks say the slump in emerging-market assets that left equities trailing advanced-nation shares by the most since 1998 last year will prove more than a fleeting selloff.

FT: – EM bonds: conflict of interest. – Going against the crowd is a thrill – if you turn out to be right. After a great decade, emerging markets have underperformed for well over a year. Time, then, for a bold call on emerging market bonds?

Reuters: – 2013 was a year to forget for emerging markets. – Last year was one that most emerging market investors would probably like to forget. MSCI’s main equity index fell 5 percent, bond returns were 6-8 percent in the red and some currencies lost up to 20 percent against the dollar.  Here are some flow numbers  from EPFR Global, the Boston-based agency that released some provisional  annual data to its clients late last week.

SCMP: – Funds will return to Asian bonds, says Fuss. – Renowned investor says the worst is over for Asian bonds, after the regional markets suffered an outflow of funds last year on US taper fears.


Catastrophe Bonds

FT: – Insurers make leap in cutting overheads. – A historic change in the way insurance companies protect themselves against natural catastrophes has helped the industry secure the biggest drop in reinsurance prices in 15 years.

Royal Gazette: – A storm that would wipe out more than half of cat bond principal. – More than half of the money invested in catastrophe bonds could be wiped out by a single hurricane, according to catastrophe modelling experts AIR Worldwide.

Artemis: – BSX ends 2013 at high of $9.713 billion listed ILS & cat bonds. – By the end of 2013 the Bermuda Stock Exchange (BSX) saw the total volume of insurance-linked listings, including catastrophe bonds, insurance-linked securities and re-insurance-linked investment funds, on the exchange hit $9.713 billion, another high.

WSJ: – Argo group completes issuance of a $172 million catastrophe bond. – Argo Group, an international underwriter of specialty insurance and reinsurance products, announced today the successful placement of a series of three catastrophe bonds which will provide $172 million of protection to its insurance and reinsurance subsidiaries through Loma Reinsurance (Bermuda) Ltd.


Bond Funds

Reuters: – U.S.-based taxable bond funds attract $4.6 bln -Lipper. – Investors in U.S.-based funds poured $4.6 billion into taxable bond funds in the latest week and limited their commitments to stock funds, taking profits after stellar stock market gains in 2013, data from Thomson Reuters’ Lipper service showed on Thursday.

InvestmentWeek: – Ten bond funds that beat the sell-off – and ten that didn’t. – Since Federal Reserve chair Ben Bernanke first raised the prospect of tapering on 22 May, bond funds have endured a torrid run, but some have coped much better than others.

InvestorPlace: – 4 weird bond ETF picks for yield amid rising interest rates. – The tapering and potential ending of the Fed’s quantitative easing programs is sending shockwaves throughout the fixed-income world. That’s because rising interest rates have a negative correlation with bond prices. But it doesn’t mean you shouldn’t consider a bond ETF.

MarketWatch: – Prudential Investments launches short duration bond fund. – Prudential Investments has launched the Prudential Short Duration Multi-Sector Bond Fund SDMAX -0.20% , a fixed income strategy that offers investors the opportunity to invest in fixed income securities that offer the potential to perform well in a rising interest rate environment. Prudential Investments is the mutual fund business of Prudential Financial, Inc. PRU +0.71% , offering a range of open and closed end funds.

Yahoo: – Moderate funds should be “moderate”. – That mutual fund you bought, figuring it would shield you from pain in the stock market, may turn out to be a wolf in sheep’s clothing.

Chicago Tribune: – Advice for adjusting your portfolio in the new year. – Common stocks and stock funds performed very well in 2013. If you maintained a diversified portfolio with a significant proportion in equities, you most likely had a good year. If your portfolio was heavily weighted toward traditional bonds or bond funds, or toward gold and precious metals, you were disappointed.

WSJ: – Bond ETFs grabbed money last year even as bond mutual funds suffered. – A down year for the bond market drove investors from traditional bond mutual funds, but money kept flowing into bond exchange-traded funds.

BreakingNews: – Bondholders may be forced to fix liquidity crisis. – With bond yields near historic lows and poised for a cycle of rising interest rates now that tapering is set to begin, financial advisers might do themselves a favor by looking once again to institutional investors for guidance.

Reuters: – Bond mutual funds post $34 billion outflow in Dec -TrimTabs. – U.S.-listed bond mutual funds and exchange-traded funds posted an outflow of $34 billion for December, the fourth-highest on record, amid rising interest rates and price declines in fixed income assets, TrimTabs Investment Research said in a report dated Jan. 6.

WSJ: – Key trends in a milestone year for ETFs. – As the first ETF turned 20, Fidelity launched new offerings and Vanguard’s assets surged. Here’s a look at six key developments and issues in the ETF realm in 2013.


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