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This Week’s Top Bond Market Stories – November 23rd Edition

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Learn Bonds

Learn Bonds: – Quantitative easing and bonds. – You may have noticed that when the Fed began “quantitative easing” that your Treasury yields started to falter. But it hasn’t been all bad, because you probably also noticed that the price of your Treasury bonds went up.  This article will explain what’s going on, and what you can do to replace Treasuries that aren’t yielding anything.

Learn Bonds: – What is likely to dominate portfolio returns over the next 2 to 3 years. – It seems like we are spending a lot of time talking about the future of interest rates and very little time talking about the characteristics of bonds and reasons for investing in the various types of bonds.  The reason for this is that the reality of interest rate risk is very great in the current environment and may tend to dominate portfolio returns over the next two or three years.  Because of this it is very important for us to understand what forces are working on the financial markets and to understand how the decisions of our policymakers might impact future outcomes.

Learn Bonds: – Kicking the bond fund habit. – The decision to start buying individual bonds and move away from bond funds may be a difficult strategic move for many investors. While there may be familiarity with individual fixed income products, an initial purchase may prove a somewhat intimidating experience. In this article, we will take up some of the motivation for weaning off funds. Further, we will take up some important considerations as one sifts through the bond universe prior to actually making an investment.

Learn Bonds: – Asset allocation of bonds. – One of the biggest questions facing investors of all ages and risk tolerance are what percentage of their portfolios should be devoted to bonds? It’s actually a very broad question with no one-size-fits-all answer. The best we can do is lay out some general parameters and from there, you’ll need to hone in on the specifics yourself.

Learn Bonds: – A conservative asset allocation for income-focused investors. – Over the next few weeks, we will release a series of articles geared toward investors who have built moderate-to-large nest eggs and are looking for general ideas about how to allocate their investments.

 

Municipal Bonds

Janney: – The municipal market in 2014. – Janney Capital Markets look at five key events/issues that will affect the municipal bond market in 2014.

Boston.com: – Watertown receives highest bond rating from Standard & Poor’s. – Watertown this month was awarded the highest bond rating offered by Standard & Poor’s — AAA — an upgrade from the town’s previous AA+ rating, local officials said.

Yahoo Finance: – Miami’s muni bonds: Safe or sorry? – Miami is bouncing back from its foreclosure crisis, but CNBC’s Scott Cohn reports the city is at the center of a 4-year SEC crackdown on municipal bonds.

Wall Street Pit: – A Puerto Rico bond investor’s portfolio gets scarier with potential downgrade to junk. – When a UBS Puerto Rico bond investor looks at their account these days, if they have the courage to do so, they are probably staring at losses over the past two months of 50% to 60%.

Forbes: – A Puerto Rico bond investor’s portfolio gets scarier with potential downgrade to junk. – When a UBS Puerto Rico bond investor looks at their account these days, if they have the courage to do so, they are probably staring at losses over the past two months of 50% to 60%.

Bloomberg: – BlackRock to Pimco ponder Puerto Rico risk to junk. – Pacific Investment Management Co. and BlackRock Inc. (BLK) say the entire $3.7 trillion municipal market is at risk should Puerto Rico lose its investment-grade status, even though many funds aren’t obliged to unload bonds cut to junk.

Investors.com: – Does your muni fund have too many nonrated bonds? – High-yield municipal bond funds have been one way for investors to get extra income in a low-rate environment. But this year the chickens have come home to roost.

Bloomberg: – Jefferson County’s rise to investment grade doubted. – Jefferson County, which filed the biggest U.S. municipal bankruptcy until Detroit, is selling $1.8 billion of sewer debt to help exit court protection. Standard & Poor’s rates the bonds above junk. Investors disagree.

Forbes: – Muni bond manager’s journal: Will your city go bankrupt? – Municipal bond investors are still weighing the implications of Detroit’s bankruptcy filing in July, especially as some pundits continue to warn that any municipality could be on the brink of financial disaster.

Fox Business: – Warnings for Puerto Rico. – BlackRock’s Head of Municipal Bonds Peter Hayes on whether Puerto Rico’s debt will be downgraded.

 

Treasury Bonds

Geoff Considine: – Treasury yields de-coupling from other bonds. – As part of an ongoing discussion of the frontier of yield vs. risk, Geoff examines the bond asset classes–and they are very interesting.

WSJ: – Fed suggests it would accept Treasurys even if government missed a payment. – Federal Reserve officials suggested they would continue to accept Treasurys as collateral and use them in central bank operations even if a debt-ceiling crisis caused the government to miss a payment on its bonds, according to minutes of an Oct. 16 videoconference call released Wednesday.

SFGate: – Treasury 10-year yield rise from one-week low on Fed speculation. – Treasuries fell, pushing the yield on the benchmark 10-year note up from a one-week low, before a speech by Federal Reserve Chairman Ben S. Bernanke that may help gauge the outlook for monetary stimulus.

InvestorPlace: – TLT Options – Bye bye, bonds! – After an ever-so-brief rally, it appears bond prices are once again losing their battle with gravity. Concerns over an eventual tapering of the Fed’s bond purchases — along with the ongoing realization that interest rates are headed higher — have returned to haunt the dreams of bond bulls yet again.

Reuters: – U.S. bonds slip; heavy global issuance cited. – U.S. Treasury debt prices slipped on Tuesday, pressured by a large global supply calendar and a rise in a German investor sentiment index.

Turkish Weekly: – Foreign money leaving U.S. – The highest capital outflow in US since February 2009 took place as foreign investors reduced US treasury bonds and stocks by 106.8 billion dollars, announced US Treasury Department on Monday. Foreign investors are now focusing more on loaning instruments and lowering the size of their portfolios.

Income Investing: – Treasurys rise waiting Fed officials’ remarks; will bond rally end with a bang or whimper? – It’s a new week, but the same old hopes remain as investors look for further clarity about tapering.

About.com: – Floating rate Treasuries to debut on January 29. – After years of discussions, floating rate Treasuries are finally set to become a reality. On January 29, 2014, the Treasury will conduct its initial auction of floating-rate bonds with $10-$15 billion of two-year notes. The Wall St. Journal reports that this is the first new type of Treasury securities to hit the market since Treasury Inflation-Protected Securities (TIPS) were introduced in 1997.

 

Investment Grade Bonds

The Street: – IShares U.S. IG corporate bond index fund (XIG) shares cross 4% yield mark. – In trading on Wednesday, shares of iShares U.S. IG Corporate Bond Index Fund were yielding above the 4% mark based on its monthly dividend (annualized to $0.8843), with the stock changing hands as low as $22.10 on the day. Dividends are particularly important for investors to consider, because historically speaking dividends have provided a considerable share of the stock market’s total return.

SFGate: – Corporate bond spread narrows as Bernanke says rate to stay low. – The extra yield company bonds offer over Treasuries approached the narrowest level in six years as Federal Reserve Chairman Ben S. Bernanke said interest rates will stay low and investors sought ways to boost income.

Bloomberg: – Barrick flips bond fortunes as miner suspends dig. – Barrick Gold Corp. (ABX) is reversing the fortunes of suffering bondholders with the industry’s highest returns as a stock sale and pledge to suspend construction leave it poised to produce more excess cash than competitors.

Barrons: – Yahoo! Rising: Sets $5B in buybacks, to issue $1B in converts. – Upward of $200 million of the bonds may be used to purchase shares from holders in a private transaction, the company said, while the rest is expected to be used for general corporate purposes.

Morningstar: – Exuberant equities fail to excite corporate bond market. – After suffering from the sharp increase in interest rates and widening credit spreads this summer, investors are hesitant to pay tighter credit spreads for longer-dated corporate bonds.

Bloomberg: – Bond dealer retreat seen in trades shrinking 39%. – Corporate-bond trades have shrunk to the smallest in a year, exchanging hands in chunks that have contracted 39 percent from before the credit crisis in another sign of a dealer pullback that threatens to drive up borrowing costs.

 

High-Yield

24/7 Wall St: – Junk bond spreads have tightened handily again. – 24/7 Wall St. has not been covering the junk bond market as much of late because spreads were in a narrow range for quite some time. That was then. The 10-year Treasury note hit a 2.80% yield in the middle of this week and has only just now find buying support enough to bring it back under 2.8% again. This marked the highest yields since mid-September as the worries are growing all over again about when the bond purchasing will begin to be tapered.

Income Investing: – As stocks soar, junk bonds hamstrung by wide spreads. – Junk bonds tend to have a lot in common with equities, and both have had good years in 2013. But for junk bonds it’s really only been a good year in a comparative sense: they’re up 6.35% on average in a year when the Barclays Aggregate index is down 1.27%. Meanwhile the Dow is up 19% and the S&P is up 22.5%. So really it’s not even a contest.

Morgan Myrmo: – Finding high yield in the foreign oil majors. – When it comes to providing the world with energy, there are a handful of extremely large companies that dominate the global market. These companies, known as the oil majors, are involved with exploration, production and distribution of oil, as well as other resources to a smaller extent.

Bloomberg: – Junk glistens under ‘Bernankecare’ as worst stocks win. – Carl Giannone says he’s given up hunting for quality stocks. Now he’s simply riding the wave of upward momentum in the U.S. market.

Motley Fool: – Monthly REIT income: The high-yield risk. – One of the biggest changes in retirement is the loss of your salary. Buying securities that pay monthly dividends can replace that lost income. There are a number of real estate investment trusts (REIT) that pay monthly, but you should be careful to avoid the potential siren song of a high yield.

Crain’s: – Junk-bond market starts to pile up. – Would you lend someone money if there was a better than even chance you would never get paid back? Of course you would—if you were today’s crazy junk-bond market.

HighYieldBonds.com: – 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.

 

Emerging Markets

Investment Europe: – Petering out liquidity weighing on emerging markets, bonds and gold. – While the economic recovery now under way in the developed world will gain additional momentum in 2014, major emerging markets are still dealing with the cyclical downturn they experienced this year, according to Julius Baer.

Reuters: – Analysis – Counting the cost of currency risk in emerging bond markets. – Once a source of rich returns for yield-hungry investors, emerging markets are hammering home a long-ignored truism: banking on currency strength to enhance returns on stocks and bonds is not a one-way ticket to profits.

CNBC: – Can emerging markets offer inflation protection? – As the world’s main central banks try to battle the threat of stagnant growth and falling prices by implementing inflationary measures, one option for yield available to investors is emerging market bond plays.

MarketWatch: – ProShares launches first short term emerging markets bond ETF. – ProShares, a premier provider of alternative ETFs, today launched the Short Term USD Emerging Markets Bond ETF (EMSH), the first short term emerging markets bond ETF in the United States. The ETF is designed to offer attractive yield potential with reduced interest rate sensitivity.

Schroders: – Multi-Asset Insights: emerging market debt, Europe and low volatility (for now!). – The domestic environment for most emerging market bonds remains challenging due to slow growth and rising inflation, posing a challenge to central banks. Emerging markets suffered a broad sell-off over the summer on concerns that the Federal Reserve (Fed) would begin to taper quantitative easing. Economies with large and growing twin (fiscal and current account) deficits came under most pressure due to their vulnerability to a reduction in liquidity.

Bond Funds: – Emerging markets brace for Fed tapering disruption. – Bloomberg Economics Editor Michael McKee about the challenges the Federal Reserve faces in tapering bond buying and the potential impact on emerging markets. He speaks on Bloomberg Television’s “In The Loop.”

FE Trustnet: – Is there any point in holding emerging market debt funds? – FE Trustnet looks at the pros and cons of investing in a sector that has taken a battering this year, asking the opinions of fund managers with differing views on the subject.

Money Marketing: – Emerging market funds dropped as tapering fears return. – Fund investors continued to sell emerging market stocks and bonds last week after strong US growth numbers increased the chance of the Fed starting to taper quantitative easing.

 

Catastrophe Bonds

Artemis: – Catastrophe bond risk premiums, expected losses down again in Q3. – It’s time for another of our quarterly looks at two key metrics which reflect recent trends in the catastrophe bond issuance market. These two metrics demonstrate where insurance-linked securities investors risk appetite lies, when it comes to cat bonds, and how pricing has moved recently.

The Asset: – Cat bond market could more than double to USD50 billion by 2018. – The number of catastrophe or cat bonds outstanding could more than double from the current level of US$19 billion to US$50 billion by the end of 2018, according to a report from BNY Mellon.

Artemis: – No impact expected to cat bond fund from midwest tornadoes. – Yesterdays outbreak of severe thunderstorms, which triggered large hail, damaging winds and tornadoes across the U.S. midwest, is not expected to impact any of the catastrophe bond positions in Swiss catastrophe bond investment fund manager Plenum Investments portfolio.

 

Bond Funds

David Fabian: – Buy ETFs to beat the tax man. – With less than six weeks until the end of the year, investors should start doing some tax planning on their taxable investment accounts to ease the burden of capital gains. Many advisors recommend different strategies to tackle this situation ranging from selling losing positions to gifting investments. The right strategy for you will ultimately depend on your individual mix of income, deductions, investment vehicles, and other factors.

Morningstar: – Bond funds for your portfolio. – Bonds may not be performing as well as equities, but fixed interest is an important part of a well-diversified portfolio.

Financial Iceberg: – iShares Barclays Treas Bond (TLT). TLT is starting to trade below 104.70 which means that the dead cat bounce sequence is complete and we will go back testing 103.60. A daily close below that level is very bad technically speaking (Which it did on November 20).

Bond Buyer: – Fund Managers try to boost returns from a dreadful 2013. – After two years of double-digit gains, returns for the Lord Abbett AMT Free Municipal Bond A have tumbled in 2013.

Bloomberg: – The yield curve may indicate gains for bond investors. – There were two notes this morning from bond strategists wrestling with the difference between short- and long-term bond yields. With the Janet Yellen’s talk of the Fed anchoring near-term yields through continued policy accommodation, and inflation still virtually non-existent, each wonders how 10-year yields can be so much higher than 2-year yields.

ETF Trends: – ETF Chart of the Day: Mortgage Bond Bonanza. – We have seen some selling pressure in the “benchmark” ETF name that tracks the Mortgage Backed Securities market, MBB (iShares Barclays MBS Fixed Rate Bond, Expense Ratio 0.31%) as the fund has seen about $150 million flow out via redemption activity.

Every Investor: – Finding a yield from bonds in return-free risk environment. – “Return-free risk” is the expression some have coined to describe the current outlook for fixed income investing.

This Day Live: – Oteh foresees more patronage for bond market. – The Director General, Securities and Exchange Commission (SEC), Ms. Arunma Oteh, has expressed optimism that the Nigerian  bond market will attract more international capital following its inclusion in the emerging markets indices of Barclays and JP Morgan.

Reuters: – Loomis Sayles’ Fuss, a bond guru, still likes stocks. – A few days after the Red Sox won the baseball World Series, Loomis Sayles’ Dan Fuss was in New York, and the legendary Boston-based money manager couldn’t help but gloat a bit at the expense of Beantowns’s arch rivals the New York Yankees.

ETF Daily Finance: – Bond market gets slammed on Fed tapering flip-flop. – All those Wall Street flip-floppers — who did a 180-degree turn on their Federal Reserve tapering expectations only a few weeks earlier — got crushed. Now, they’re doing another 180 and coming around back to the view I’ve held all along. That view? Tapering is coming sooner than expected, Fed protests to the contrary be darned. And mark my words: Short-term rate hikes will then follow, also sooner than expected.

 

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