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This Week’s Top Bond Market Stories – November 16th Edition

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Learn Bonds

Learn Bonds: – Nobel Laureate + Bond Guru = The DoubleLine Shiller enhanced CAPE fund. – The DoubleLine Shiller Enhanced CAPE Fund is an equity fund that combines the investment strategies of both Jeff Gundlach and Robert Shiller. Witnessing a need for sector selectivity in the stock market, and basing this selectivity on Robert Shiller’s Cyclically Adjusted Price-to-Earnings Ratio, the fund’s primary objective is to purchase equity derivatives of the most undervalued sectors in the stock market, and park the net assets in debt instruments.

Learn Bonds: – If the smart money is selling, should we be buying? – When new issues become as massive as they are today, can it mean that markets are overheating and getting ready to give back some gains?

Learn Bonds: – Are bonds really in a bubble? – Despite continued fearful cries from naysayers over the past several years, the bond market hasn’t experienced the catastrophe that many continue to anticipate. But while there is no disputing the fact that we are in the final inning of a 30+ year bull run that has seen Treasury bond yields drop from the mid teens to practically zero (see below chart), predictions for an imminent, far flung bond market disaster continue to be a bit, well, far fetched in my opinion.

Learn Bonds: – Taking a look at Freeport-McMoRan and its bonds. – Income-focused investors looking to add exposure to basic materials should consider Freeport-McMoRan Copper & Gold.

Learn Bonds: – Fixed income rarely remains fixed for long. – Wealth Effect Blogger looks at how investment income changes over the life of your portfolio.

 

Municipal Bonds

Reuters: – Fitch may cut Puerto Rico’s bond rating to junk. – Fitch Ratings said on Thursday it may soon strip heavily indebted Puerto Rico of its investment grade credit rating, threatening to tag the U.S. territory as the largest municipal bond issuer to date to tumble into junk bond territory.

WSJ: – Supreme court to review muni-bonds case. – If you invest in state and local government bonds, keep an eye on an important tax case heading to the U.S. Supreme Court.

BondBuyer: – Muni watchers view hedge fund presence, liquidity favorably. – Investors in municipal bonds are mostly pleased that hedge funds have increased their bets recently in distressed state and local government debt.

Reuters: – American Airlines muni bonds take flight for U.S. mutual funds. – Debt issued on behalf of a bankrupt airline has turned into one of the unlikeliest winners on the U.S. municipal bond market.

MoneyBeat: – How hedge funds are trading Muniland. – What’s a distressed-debt fund manager to do in this Goldilocks credit market? The answer for many is to play municipal bonds. But the vulture-fund strategies don’t translate perfectly in the municipal market and the hedge funds hunting for bargains there are trying out new tactics.

BusinessWeek: – Puerto Rico distress spells Wall Street opportunity. – Puerto Rico debt is having its worst year since 1999 as a shrinking economy strains the island’s finances. For Wall Street banks and law firms, that’s a signal to tout the bonds to investors in distressed debt who don’t typically buy municipal securities.

TheStreet: – Muni bonds for income and tax savings. – It’s tough to find yield in fixed-income markets but one currently unloved sector to potentially consider is municipal bonds, especially for taxable accounts.

Chicago Tribune: – Chicago bonds hold up in light trading after downgrade. – U.S. municipal bonds issued by Chicago held up in light trading on Monday even as the city’s debt suffered another triple-notch ratings downgrade on mounting concerns about its public pension liabilities.

Marc Gordon: – City, town, county, and state municipal bond issuers possessing elevated risk. – When it comes to municipal bonds I start from a simple premise, which is that I want individual municipal bonds to be in the “safe” money grouping where there is minimal risk to principal; for funds that are to be placed at risk, I would rather they be in the stock market with its potential for greater returns.

VAGazette: – Bond insurers sue Detroit over October 1 bond default. – Three insurance companies that guaranteed payments on Detroit’s voter-approved general obligation bonds sued the city in U.S. Bankruptcy Court on Friday over its October 1 default on $9.37 million in payments due to bondholders.

 

Treasury Bonds

BusinessWeek: – U.S. Yield gap widens to 2-year high as Yellen backs stimulus. – The difference between Treasury five-year and 10-year notes yields widened to the most in more than two years as Federal Reserve Chairman-nominee Janet Yellen told Congress she will promote the Fed’s unprecedented stimulus program until economic growth is stronger.

MyDesert: – Has global money supply outstripped investment opportunities? – In the immediate aftermath of the partial U.S. Government shutdown, an unusual amount of money flow seemed to return to the U.S. Treasury’s weekly auctions. This brought the yield of the focal 10-year U.S. Treasury bond down to under 2.5%, the lowest level since early last summer.

FT Adviser: – How high could US interest rates go? – From May – when the Federal Reserve announced its intention to reduce its quantitative easing programme – to the start of September, yields on 10-year US government bonds increased from 1.66 per cent to almost 3 per cent. They are currently at roughly 2.6 per cent. This shows the market continues to anticipate a tightening of monetary policy. Early indicators suggest that the Fed will resume tapering at the end of 2013 or beginning of 2014.

Before Its News: – Zacks #1 ranked government bond mutual funds. – Mutual funds investing in debt securities are among the most secure investment options which provide regular income while protecting capital invested. Funds which are part of this category bring a great deal of stability to portfolio which a large proportion of equity, while providing dividends more frequently than individual bonds. U.S government bonds funds usually invest in Treasury bills, notes and securities issued by government agencies. They are considered to be the safest in the bond fund category and are ideal options for the risk-averse investor.

4Traders: – Pimco’s Gross boosted U.S. government-related holdings in October. – High-profile fund manager Bill Gross boosted U.S. government-related holdings at the world’s largest bond fund he runs in October amid a price rally in Treasury bonds.

MarketWatch: – Dennis Gartman: If it’s Yellen, you should be sellin’ bonds. – Dennis Gartman is sounding the alarm: a bear market is coming in bonds. Janet Yellen, nominee to take over as chair of the Fed, heads to Congress on Thursday for her confirmation hearing. If she takes over as leader of the central bank, she will inherit a Fed that “wants a more positively sloped yield curve,” Gartman said. The front end of the yield curve will likely stay anchored, as the Fed has committed to keeping its key interest rates low, but the taper is likely to push out the long end of the curve. That means the bonds many investors hold in their portfolio will be worth less.

Bloomberg: – Vanguard bond chief says losses aren’t locked in when Fed tapers. – A reduction of quantitative easing by the Federal Reserve needn’t be a harbinger for losses with growth slow and inflation subdued, according to Gregory Davis, named last week as head of fixed income at Vanguard Group Inc.

 

Investment Grade Bonds

WSJ: – Companies sell bonds at fastest pace on record. – Highly rated companies are selling bonds in the U.S. at the fastest pace on record, with total bond sales for 2013 surpassing $1 trillion, data provider Dealogic said.

Petunia Bounce: – Some great benefits of High-Yield Investment. – High-yield investment could prove to be very worthwhile for people. While there’s a quantity of risk involved in high-yield bonds investments, they can also be very profitable for investors if they are focused towards companies that have the potential to recover from their financial instability.

FT: – Corporate default risk models are broken. – Half a decade of loose monetary policy in the US has produced a curious reaction in the risk analysis models that attempt to forecast the rate at which the country’s companies will default – the models have gone mild.

FT Adviser: – How can corporate bond investors protect themselves? – The macro backdrop is not brilliant, but it’s not a disaster either. Economic activity has shown some signs of improvement in Europe and the US, although regular risk flare-ups such as the US government shutdown are hardly encouraging.

FT Adviser: – Sector analysis: Corporate bonds. – While they may be doing better than gilts, corporate bonds are not turning in a particularly impressive performance.

Trading Floor: – Corporate Bond Weekly Update: Market hungry for new bonds. – Despite corporate bonds hitting highs for the year so far, the market is clearly craving new bonds and current issuances are frequently oversubscribed. The decision by the European Central Bank to cut the refinancing rate last Thursday to 0.25 percent from 0.50 percent has undoubtedly given that push fresh momentum.

FT: – Banks rush to secure low-cost financing. – Sales of investment grade bonds by financial institutions may surpass the $30bn mark in coming weeks as global banks attempt to raise this year’s final batch of funds at low borrowing rates.

 

High-Yield

Financial Post: – Moving deeper into high-yield bonds. – Sandy Liang has been positioning the Aston Hill Strategic Yield Fund for rising interest rates over the past year, which is reflected in the fund’s current weighting of more than 80% in high-yield bonds.

ETF Trends: – Sidestep rate risk with this high yield bond ETF. – A look at the ProShares High Yield-Interest Rate Hedged ETF. Investors who are still looking for yields but are wary about rising rates can find that this ETF could fit the bill.

FT: – Record sales of lowest rated bonds. – Global borrowers with weaker credit quality are taking advantage of investors’ relentless search for higher yields to sell a record amount of bonds so far in 2013.

IndexUniverse: – Clark on floating debt vs. high yield. – Historically low interest rates, accompanied by an unprecedented investor desire for income generation, have catapulted floating-rate debt instruments to take center stage in the search for yield. But how do they compare to traditional high yield debt?

Slate: – Will Noah bonds sink without a trace? – Ark Encounter, a creationist theme park, is selling junk bonds. Only problem is three years after first announcing the project, they haven’t even broken ground.

WSJ: – Barclays bowled over by yield-seeking investors. – In another sign of how starved investors are for high-yielding assets, Barclays has received around $10 billion in orders Wednesday for a bond that will yield around 8%.

Elliott Wave: – Beware of optimism in the bond market. – Elliott Wave International believes that the major shift in the direction of bond yields that started in 2012 is far from over.

CreditFlux: – Retail investors dump Blackrock US high yield ETF. – Last week saw outflows from US high yield ETFs outpace that from investment grade ETFs. However, this was almost entirely down to investors dumping a single fund, Blackrock’s $15.9 billion iShares iBoxx $ High Yield Bond Fund.

HighYieldBond.com: – WellCare Health Plans bonds (BB/Ba2) price at par to yield 5.75%. – WellCare Health Plans today completed an offering of senior notes via bookrunners Goldman Sachs, JPMorgan, and SunTrust, according to sources. Terms were inked at the tight end of talk and at the target size of $600 million.

Eagle Tribune: – Beware of high yield investments. – In an attempt to generate more income, many are turning to complex investments promising higher returns. They are doing so, however, without conducting the due diligence required to understand what they are buying into and the risks they are assuming.

 

Emerging Markets

WSJ: – Outflows from emerging-market bond, equity funds accelerate. – Outflows from bond and equities funds in emerging markets accelerated sharply in the week ending Nov. 13 due to uncertainty over when the Federal Reserve will start pulling back from its post crisis stimulus measures.

IFR: – EM high-yield: It pays to be wary. – The European high-yield market has snapped up a spate of emerging markets corporate bonds in recent weeks, but some investors risk making costly errors in their rush to buy.

WSJ: – Turmoil hits Venezuela bond prices. –  Venezuelan bond prices have collapsed more than 10% over the last three days as the government threatened to impose harsh controls on the economy to arrest the world’s highest inflation rate.

TheStar: – Emerging economies, including M’sia may suffer more from U.S. taper. – Emerging markets are likely to see considerably more impact from higher U.S. interest rates when the Federal Reserve pulls back from its massive monetary stimulus, World Bank President Jim Yong Kim said on Tuesday.

SFGate: – Emerging markets are getting crushed again. — After a sharp sell-off during the early part of the year, emerging market stocks, bonds and currencies bounced back in September after the Federal Reserve decided to delay tapering its $85 billion monthly asset purchase program. But markets are once again getting antsy in the wake of the recent FOMC statement and improving economic data, which has reminded everyone that Fed tightening is near.

Bloomberg: – Emerging-market banks threatened by end of credit boom. – The world’s largest emerging markets recovered quickly from the 2008 financial crisis because consumers and companies went on a borrowing binge. Now that credit spree is coming back to haunt banks in those countries.

Forbes: – J.P. Morgan USD emerging markets bond getting very oversold. – In trading on Monday, shares of the iShares J.P. Morgan USD Emerging Markets Bond ETF entered into oversold territory, changing hands as low as $108.02 per share. We define oversold territory using the Relative Strength Index, or RSI, which is a technical analysis indicator used to measure momentum on a scale of zero to 100. A stock is considered to be oversold if the RSI reading falls below 30.

FT: – Singapore debt feud tests emerging bond markets. – A fight has erupted between a group of institutional investors and the owners of Singapore semiconductor company UTAC over a debt swap that will test governance standards in emerging bond markets.

Emerging Markets Daily: – EM power rankings: EM fell on renewed Fed tapering concerns. – I start each week highlighting previous week’s best and worst performing emerging-markets single country exchange-traded funds, using the most heavily traded for each nation. Frontier markets are not included–yet.

FT: – Local currency bond market given revamp. – Yield-hungry investors undeterred by the developing world’s economic slowdown and the threat of reduced US stimulus, are hoping last month’s revamp of the local currency corporate bond market has breathed new life into an overlooked asset class.

 

Catastrophe Bonds

FTSE  Global: – Catastrophe bond market soaring says BNY Mellon. – The number of catastrophe or cat bonds outstanding could more than double from the current level of $19bn to $50bn by the end of 2018, according to a report from BNY Mellon.

Artemis: – More detail on USAA’s residential reinsurance 2013-2 cat bond. – Residential Reinsurance 2013-2 launched to investors last week and sees USAA looking to secure another source of fully-collateralized, capital markets backed, multi-peril and multi-year reinsurance protection from insurance-linked securities investors. Artemis has received some more detail on the transaction through conversations with investors and rating agency Standard & Poor’s pre-sale report for the deal, which covers one of the two tranches on offer.

Felix Salmon: – Cat bonds wouldn’t have helped the Philippines. – There’s no good reason to believe that a cat bond would have paid out in the wake of Haiyan. Cat bonds tend to pay out only under certain narrowly-prescribed conditions, and those conditions would probably have drawn the geographical area to be protected much more narrowly than the entire Philippine archipelago.

 

Bond Funds

Winnipeg Free Press: – Investing in bonds — not as simple as you think. – So, let’s say I am a conservative investor with a primary goal of capital preservation. As a result, I invested 70 per cent of my RRSP into a number of government bonds because I did not want to take any risks.

InvestmentNews: – Beginner’s luck? Edward Jones’ first fund was October’s top seller. – The Bridge Builder Bond Fund (BBTBX), the firm’s first proprietary fund, was launched on Oct. 28 and promptly received $2.8 billion in inflows, according to Morningstar Inc. That’s more than any other single mutual fund received during the month and twice the net inflow of the $11.7 billion Goldman Sachs Strategic Income Fund (GSZAX), the next-best-selling bond fund.

Wealth Management: – Fidelity rolls out new funds as antidote to interest rate shocks. – Fidelity Investments, the second-largest U.S. mutual fund company, on Tuesday rolled out three new funds to help investors sidestep the interest-rate shock that is expected when the Federal Reserve unwinds its easy money policy.

TheStreet: – New ETF offers protection against rising rates. – The bond market is becoming increasingly difficult to navigate as any positive economic news lead to fears that the Federal Reserve will start reducing its monthly asset purchases — the so-called tapering — causing bond prices to fall and interest rates to rise, and which is what happened last Friday when employment data was released.

Minyanville: – Don’t get trampled by rising yields. – If yields continue to rise, eventually the Fed will start to be a cost center as opposed to an income stream for the Treasury. This will no doubt raise even more questions as to the sustainability of the Fed’s programs.  Yields may now be rising for good, which will trump any new band-aid the Federal Reserve tries to throw at the problem.

Income Investing: – Bonds weaken again as market tries to prep for taper. – It’s become an endless exercise for the bond market, trying to position itself to anticipate the Fed’s eventual wind-down of its $85 billion monthly bond purchases. Markets thought they had it right in September, only to be proven wrong when the Fed surprised everyone by saying it wasn’t ready to taper yet.

Minyanville: – Searching for income in a low interest rate environment. – Investors are scrambling to get higher yields while also trying to protect against capital loss if and when interest rates start climbing. To develop securities to fill this need, ETF-makers are combing the globe, looking for short-term debt of riskier companies. There is short-term debt in both US and emerging markets that merits consideration.

CNN Money:  – El-Erian: The market isn’t as fickle as it appears. – The market isn’t reacting to certain economic news as we might expect, but that doesn’t mean it isn’t rational.

IndexUniverse: – ProShares’ launches 2nd rate-hedged ETF. – ProShares has launched the ProShares Investment Grade–Interest Rate Hedged fund, which the firm is touting as the first investment grade bond ETF in the U.S. that provides a built-in hedge against rising interest rates.

 

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