This Week’s Top Bond Market Stories – May 24th Edition

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LearnBonds: – Where has all the value gone? – For the first time since the financial markets bottomed in 2009, I can say that across the universe of securities I monitor, there are no opportunities worth taking. The issue is valuation.

LearnBonds: – Master Limited Partnerships. – A Master limited partnership (MLP) is a publicly traded entity that combines the tax benefits of a limited partnership with the liquidity of a publicly traded company. MLPs are listed on the major U.S. stock exchanges, but because they are partnerships, MLPs do not have to pay corporate taxes at the state or federal level. To qualify for MLP status, a partnership must derive 90% of its cash flows from activities related to real estate, natural resources and commodities.

LearnBonds: – Will the 10-year Treasury yield continue to drop? – With significant selling coming into the beginning of the year, there didn’t seem to be many market watchers predicting the rally in bonds we’ve seen over the past five months. Indeed, with the Fed plodding along with the taper, and speculation that short-term rates could potentially tighten in 2015, the 10-year’s move from 3 to 2.5% this year was widely unanticipated.

LearnBonds: – Mortgage refinancing jumps. – The mortgage refinancing gauge jumped 3.8% to the highest level since the week ended March 14. The purchase-applications measure fell 2.8%. Since the yield of the 10-year Treasury note broke below 2.70%, refinancing activity and home purchase activity have experienced role reversal.

LearnBonds: – When will rates finally normalize? – During the first half of 2009, when longer-term Treasury yields were soaring and the consensus among bond-market pundits was that Federal Reserve rate hikes were not that far off, people would have thought you were nuts if you said short-term rates wouldn’t normalize for decades. I still remember some of the reactions I received when telling people I didn’t think the Fed would raise rates for many years to come.


Municipal Bonds

Reuters: – Refinancing to dominate U.S. municipal bond sales next. – Refinancing will come roaring back into the U.S. municipal market next week, when $5.7 billion in total new issuance is expected.

Bloomberg: – Muni yields set for biggest weekly drop in a month as sales Ebb. – Yields in the $3.7 trillion municipal market fell this week by the most in a month as Treasuries rallied and local borrowing declined.

Income Investing: – Bank of America bullish on munis, sees rates falling further. – While some other banks are souring on municipal bonds, Bank of America Merrill Lynch‘s muni team maintains its bullish outlook on pretty much every aspect of the muni market, from underlying Treasury yields to comparable muni yields to municipal credit risk.

Investing.com: – What happened to the muni meltdown? – The last few weeks have seen a very decent drop in intermediate- and longer-term tax-free bond yields. This year’s stable muni market is very different from that of a year ago, when the great meltdown ensued from bond fund selling fomented by fears of Federal Reserve tapering of quantitative easing.

Bloomberg: – California drought won’t hurt muni finances, Moody’s says. – California’s drought won’t affect the creditworthiness of the state or most of its local governments, Moody’s Investors Service said.

Daily News: – Financial firms scale back New York municipal bond holdings fearing proposed teachers’ contract could raise deficits. – UBS Global Asset Management slashed allocations for New York City bonds by half for most of their wealthy clients’ portfolios. The Atlanta-based RidgeWorth Capital Management Inc. has also pared down its holdings, Bloomberg reported.

San Marcos Mercury: – San Marcos’ municipal bond rating upgraded to AA. – The City of San Marcos has been granted an upgrade in its Standard & Poor’s long-term bond rating from “AA-“ to “AA” on outstanding general obligation debt, an improvement that will save taxpayers money on repaying debt that finances major capital projects.


Treasury Bonds

Investing.com: – U.S. 10-year treasury note speculators decrease bearish bets. – Large futures market traders and speculators reduced their overall bearish bets in the 10-year treasury note futures last week to the lowest level in six weeks, according to the latest Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) on Friday.

Joseph Calhoun: – The new widowmakers. – The U.S. Treasury bull market has defied the odds for 30 years and yet traders keep trying to call the top. It will come someday but for now I’d suggest backing away from the shade of that tree.

WSJ: – Treasury bonds pare losses after disappointing labor, housing data. – Treasury bonds trimmed price losses on Thursday as the latest round of disappointing U.S. data in labor and housing markets attracted fresh buying into relatively safe U.S. government debt.

Donald van Deventer: – Forward T-Bill rates twist, with projected 10-year Treasury yields up 0.17% in 2024 from last week. – Projected one-month Treasury bill rates showed a surge and a twist this week, with rates in 2020 up by as much as 0.15% and rates in 2015 down by 0.05%.


Investment Grade Bonds

WSJ: – AT&T could dial up $7.5 billion bond sale for DirecTV deal. – Add another name to the list of mammoth corporate-bond sales: AT&T Inc. could sell as much as $7.5 billion in new debt to help pay for its $49 billion acquisition of DirecTV, analysts say, which would rank as the fifth largest high-grade corporate-bond sale in the U.S. this year.

Businessweek: – The cheap Pimco fund that has Gross reaching for his wallet. – Billionaire Bill Gross can’t resist this rarity: A slice of the corporate debt market that still looks cheap.

Investment Exchange: – Corporate bonds still favoured, despite tighter spreads. – Thomas O’Gorman, senior vice-president and director of fixed income at Calgary-based Franklin Bissett Investment Management, says he continues to emphasize corporate bonds, despite the fact that there has been a slight erosion in the fundamentals of corporate issuers.

WSJ: – Credit Suisse sells $5 billion in debt after guilty plea. – Bond investors shrugged off a recent guilty plea from Credit Suisse Group AG, lining up for a $5 billion debt sale from the Swiss bank on Thursday.


Junk Bonds

Star Tribune: – Fund managers suggest dialing back expectations for junk bonds following years of big returns. – Junk bonds have been strong investments since the recession, and investors continue to pile into the market. But fund managers say they’re looking less attractive. Many are taking a step back and urging investors at least to temper their expectations.

App.com: – John Waggoner: Junk bond advantages are slim. – Currently, high-yield bonds – IOUs issued by companies with dubious credit ratings – yield about 5 percent, which isn’t high by anyone’s standards, including those who manage high-yield bond funds. If you’re thinking of reaching for a bit more yield through a high-yield bond fund, you might want to check again.

WSJ: – Chasing yield, investors plow into riskier bonds. – Large investors are rushing into the riskiest corporate bonds, frustrated by low interest rates on safer investments and convinced that even companies with shaky finances are in little danger of default.

Bloomberg: – Mom and pop bet against hedge funds on junk-rated loans. – Mom-and-Pop investors have had it with junk-rated loans. Professional money managers, meanwhile, are still piling in and using borrowed money to buy them up.

Sedgwick County: – Warning signs for junk-bond investors. – Junk bonds have been strong investments since the recession, and investors continue to pile into the market. But fund managers say they’re looking less attractive. Many are taking a step back and urging investors at least to temper their expectations.

MoneyNews: – Investors flock to junk bonds, creating danger of blowout. – Investors are snapping up high-yield (junk) bonds like there’s no tomorrow, and that’s raising the risk of a market rout, experts say.

YCharts: – Dividend stocks vs. junk bond yields. – After kissing 3% at the start of the year, the yield on the 10-year Treasury is down nearly a half a percentage point. Investors with a core bond allocation tied to the Barclay’s Aggregate Bond Index aren’t exactly raking in income either. Meanwhile, diving into the junk pool means accepting record-low reward for what can be a very risky investment.


Emerging Markets

FT Adviser: – Emerging market debt: Adviser views. – Emerging market debt saw a substantial sell-off in late 2013, but with glimmers of hope that this may be starting to reverse we ask advisers what they think of the asset class.

The Wisdom Tree: – Current valuations suggest greater resiliency across Emerging Market (EM) debt. – Compared to this time last year, valuations are markedly different for EM debt than for other opportunistic fixed income sectors.

ETF Trends: – WisdomTree: Positioning for an Emerging Market rebound. – Most recognize that emerging market consumers will be important drivers of long-term global economic growth. However, emerging markets experienced short-term pain last year, and the performance out of the gate for this Index was challenged in the second half of 2013.

WSJ: – The death of emerging markets was much exaggerated. – For the eighth straight week in a row, emerging market debt funds enjoyed inflows last week, with $500 million heading into the asset class, data from EPFR Global and Bank of America Merrill Lynch show Friday.


Catastrophe Bonds

Business Insurance: – Caribbean risk pooling facility considers cat bonds, collateralized reinsurance. – The Caribbean Catastrophe Risk Insurance Facility’s chief executive, Isaac Anthony, has said the risk pool is “seriously looking at the possibility of getting involved with (catastrophe) bonds and potentially, collateralized reinsurance” as part of risk transfer, reports Artemis.bm.

Insurance Journal: – Florida’s citizens readies $1.5 billion catastrophe bond deal. – Florida’s largest property insurer is preparing to transfer $3.1 billion in risk through a combination of reinsurance catastrophe bonds, including a $1.5 billion deal that is the largest of its kind on record.

Reuters: – Amlin sees catastrophe reinsurance rates staying low. – British insurer and reinsurer Amlin Plc reported a 5 percent rise in quarterly gross written premiums in a tough market and warned of increasing competition in the U.S. catastrophe reinsurance market.

WSJ: – Meteor bonds. Oh yes. – Yes, bonds that allow investors to bet against natural disasters have a new risk to wager on: meteor strikes. United Services Automobile Association, an insurer, is poised Thursday to issue the first ever catastrophe bond that will hinge in part on space rocks hitting the U.S.


Investment Strategy

WSJ: – Dueling strategies for your retirement funds. – For anyone approaching retirement, an important investing question is: Should your strategy be “to” or “through”? Behind this odd-sounding question is the difficult balancing act facing savers: building an investment portfolio that can generate enough savings to last potentially decades and, at the same time, protecting against losses from which it can be impossible to recover.

FT Adviser: – Income Focus: Uncertain future for bonds. – Travelling around Europe and the Middle East in recent weeks has been interesting. Bond investors are worried about yield and about low returns. Some want to give up illiquidity to boost returns, others want more aggressive active management to avoid the hit when interest rates rise, but most opt for the consensus trade of long credit/short duration, for the carry.

Forbes: – Three big reasons to consolidate your 401(k) into an IRA. – If you’re leaving a company or retiring, what do you do with your 401(k)? You can, of course, cash it out or leave it with your former employer.

Bloomberg: – Income ideas for the yield-starved. – Ah, to be a rentier! Gone are the days when Vladimir Lenin could rail against these “parasitic” capitalists for “clipping coupons” from their bonds while doing no work at all. Nowadays, with 10-year Treasury notes yielding a mere 2.5 percent and junk bonds barely 5 percent, investors who want a decent stream of income have to scramble.

Financial Post: – Managers prepare for bond yields to rise. – Jeff Herold and Maria Berlettano continue to have a defensive stance for the NexGen Canadian Bond Fund, despite seeing some attractive opportunities in the bond market in anticipation of more restrictive monetary policy.

Trustnet: – What are the risks of buying a bond fund now? – With even fixed income managers themselves, such as Philip Milburn of the £1.7bn Kames High Yield Bond fund, saying the outlook for the asset class looks difficult, FE Trustnet looks at the reasons why.

Morningstar: – The impact of rising rates. – How will your bond and stock holdings fare when the climb commences? At some point, interest rates will climb again. But that day keeps getting pushed into the future. When it does come, how will your bond and stock holdings fare? Some history may help give an answer.


Bond Funds

Think Advisor: – PIMCO funds bled $5.5 billion in April: Morningstar. – Morningstar (MORN) says investors added close to $28 billion to long-term mutual funds in April. The fund flows included strong movement to both equity and bond funds.

FT.com: – Fears over ‘lowflation’ serve up bond market surprise. – Rather than head higher and pierce the 3 per cent level, as virtually everyone had expected at the start of the year, the yield on US 10-year government bonds has touched its lowest since October. And, at just 2.5 per cent, it is not the only interest rate to behave in such an unexpected way.

WSJ: – Worries of a bank-loan-ETF exodus mount. – Investors have been pulling money out of exchange-traded funds backed by bank loans, once again raising concerns about the ability of lightly traded financial markets to handle a big exodus from ETFs.

Chron: – It’s twilight for managed mutual funds. – It doesn’t matter how many pages of advertising they take out in the glossy financial magazines, or how many ads they buy on television. It doesn’t even matter how many salespeople they send out disguised as financial advisers. Managed equity funds are on the way out. Today, low-cost index funds are what investors choose – for many good reasons.

Businessweek: – Finra fines JPMorgan 3 minutes of profit for errant bond reports. – The world’s biggest bond dealers, including JPMorgan Chase & Co. (JPM:US) and Morgan Stanley, failed to properly report trades to the industry’s price-tracking system more than 11,000 times. JPMorgan’s penalty: About three minutes of its annual profit.

Securities Lending Times: – Bond ETFs aren’t cheap to borrow, finds Markit. – Bond exchange-traded funds are among the most expensive to borrow in the US ETF market, according to Markit Securities Finance.


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