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This Week’s Top Bond Market Stories – October 12th Edition

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Learn Bonds

Learn Bonds: – CEFs: Spelling Discount Opportunity For Bond Investors. – Though ETFs have become a bond investor portfolio staple over the past decade, few tend to be familiar with a similar, yet decidedly more complicated vehicle known as the closed-end fund, or CEF for short. And given most bond focused CEFs currently trade with market values equal to less than their net asset values, now is the perfect time for investors to be considering them.

Learn Bonds: – How to use bond market liquidity and confidence measures. – John Mason shows how to use bond market liquidity and confidence measures to figure out what’s going on in the bond market.

Learn Bonds: – A reality check regarding debt default, T-Bills, and the mainstream media. – Is the recent spike in Treasury bill rates anything to worry about? Financial Lexicon thinks it is.

Learn Bonds: – Debt ceiling prepping – It’s time to consider doing these 2 things. – My base case for the debt ceiling drama is still that a debt default will be avoided. This includes defaulting on either interest payments or principal payments (the bigger risk is principal payments). With that said, however, the inability of those in power to thus far completely put to rest the risk of a debt default will force some investors to take certain actions to protect their assets.

Learn Bonds: – How will the affordable care act impact municipal bonds? – With October 1, 2013 marking the start of enrollment for government run health-exchanges, it is worth taking a look at potential municipal market impacts.

Learn Bonds: – What’s so scary about long-term bonds? – The way long-term bonds are frequently discussed by the media, some investors might think they are a type of financial-markets disease, to be avoided at all costs. I’ve never quite understood this. While I don’t think a 100% allocation to long-term bonds is prudent, neither do I think a 0% allocation is a good idea. In this article, I would like to address four reasons for avoiding long-term bonds that you may have come across at one time or another.

 

Education

Yahoo Finance: – Understanding the $38 trillion bond market in 5 easy steps. – When it comes to the holy trinity of investing, (stocks, bonds and cash) it seems the rules and nuances of investing in the bond market often are the most baffling for newcomers. For this edition of Investing 101 we are going to demystify the bond market and have put together five quick tips to help you get your head around buying bonds.

Vanguard: – Bond risk—A theory of relativity. – Risk is a relative term. If someone asked you to set aside $150 a month, possibly with no return on your investment, you’d probably say, “No way!” Yet what if you knew the alternative was losing your home and all of your belongings in a fire, flood, or other emergency, with no funds to help rebuild your life? Suddenly, the $150-per-month payment for disaster insurance might seem like a good idea.

 

Mortgage Backed Securities

CFA Institute: – The cheapest bonds in the United States. – DoubleLine’s flagship total return fund has beaten 97% of peers over a three-year horizon, with a 6.8% annual return as of 30 September. Whereas some fixed-income managers feel this is just the start of the rate selloff, Gundlach appears to have a very contrarian view that rates have risen too far, and he has been aggressively buying longer-duration bonds. Because not all bonds and duration are created equally, DoubleLine, as MBS experts, has found an unique sector of the MBS market in which to express these views.

 

Municipal Bonds

MuniNetGuide: – Retail investors and the Puerto Rico debacle. – There’s nothing quite like ugly poll numbers to motivate politicians. Faced with unprecedented disapproval ratings from the electorate, our fearless leaders in Washington have reportedly decided to return to the negotiating table to work out at least a short-term deal to raise the debt ceiling for another six weeks. Depending on the details of the final agreement, if there is one, we could be right back to exactly the same place a few weeks from now.

HJ Sims: – Puerto Rico’s worst case scenario. – I’ve tried to make the case that retail investors concerned with income and not prices have a sound investment in Commonwealth-issued debt. There is evidence all around that the make-up of institutional investors of Puerto Rico debt is changing significantly. With all that in mind, buyers and sellers of the Commonwealth’s debt, beware of the sharks.

Bloomberg: – Debt-ceiling alarm freezes market with least supply. – Municipalities are borrowing at the slowest pace in more than two years, showing how the partial federal shutdown and prospect of a U.S. default are dissuading localities from taking on financing for new projects.

Reuters: – 3-U.S. funds investigated over Puerto Rico bond strategy. – U.S. mutual funds that loaded up on Puerto Rico bonds, including OppenheimerFunds, are now the target of an investigation by a state securities regulator, who says investors may not have been aware of their exposure to the island’s fiscal crisis.

 

Treasury Bonds

Bloomberg: – Obama says real boss in default showdown means bonds call shots. – “Ultimately, what matters is: What do the people who are buying Treasury bills think?” the president told reporters this week, when discussing measures he could take to end the threat of a historic default on the nation’s debt.

WSJ: – Treasurys slide; Demand strong for sale. – Treasury bond prices fell as signs of progress toward breaking the fiscal gridlock in Washington reduced the allure of the safe-harbor market, though a strong 30-year bond auction kept selling pressure in check.

USA Today: – Fidelity sheds government bonds coming due. – Fidelity Investments, the nation’s largest money market mutual fund manager, has sold all of its short-term U.S. government debt — the latest sign that investors are increasingly nervous about the possibility of a government default.

DealBook: Government standoff shakes trust in U.S. debt. – In good times and bad, the world’s financial system has long been able to rely on one thing: that the United States government would pay back its debt on time.

Wonkblog: – What’s happening in the Treasury bill market today should terrify you. – A lot of the market indicators of how much the financial world is worrying about a debt default have been quite calm over the last week. The Standard & Poor’s 500 index, for example, is only about 1 percent below its close eight days ago, when the government shutdown began. But in the less widely followed — but in many ways more important — market for Treasury bills, things are starting to get scary.

FT: – IMF says start of Fed tapering threatens $2.3tn bond losses. – Monetary tightening in the US threatens to expose financial excesses and vulnerabilities that could wipe trillions of dollars off bond markets, the International Monetary Fund warned on Wednesday in its latest assessment of global financial stability.

Bloomberg: – Gross buying bonds tops Boehner’s default warning. – U.S. financial conditions held at about the highest levels since before the worst financial crisis since the Great Depression as debt investors brushed off House Speaker John Boehner’s warning that America is on a “path” to defaulting on its debts.

USD Today: In default-risk market, investors weigh realities. – A U.S. default would be catastrophic to your portfolio but so would selling before a deal.

 

Corporate Bonds

Donald Van Deventer: – Intel Corporation bonds: Intelligent diversification. – In this note, we turn to the bonds of another iconic American industrial company, Intel Corporation (INTC). We seek to bring a bond market perspective to the outlook for Intel Corporation as a complement to analysis based on a common stock holder’s perspective.

Bloomberg: – Hedge funds used obscure bond bet to win in GM bankruptcy. – General Motors Corp. (GM)’s bankruptcy, which wiped out shareholders and left taxpayers on the hook for billions of dollars, is generating a new wave of profit for hedge funds that supersized their claim by betting on an obscure pool of GM debt issued in the Canadian province of Nova Scotia.

Bloomberg: – BofA says bonds to beat stocks in debt gridlock. – Strategists from Bank of America Corp. to Wells Fargo & Co. predict dollar-denominated corporate bonds will outperform stocks this month if political gridlock persists with the government partially shut down this week.

Bloomberg: – Goldman said to make $1.5 million error in Ford bond sale. – Goldman Sachs Group Inc. (GS) mistakenly added about $1.5 million of interest costs to a Ford Motor Co. (F) bond sale last week by using the wrong Treasury note as a benchmark for the security, according to two people with knowledge of the transaction.

 

High-Yield

ETF Trends: – High-Yield Bond ETFs: Interest Rate risk vs. Credit risk. – Senior floating-rate bank loans have helped investors generate income under the threat of rising rates, but with the Fed holding off on tapering, high-yield, junk bond exchange traded funds could be a better play.

Barron’s: – Keep paring rate risk, adding credit risk – Barclays. – Barclays credit strategists Bradley Rogoff, Eric Gross and Ellie Lan today look back at a strange period over the summer when high-yield bond spreads rose in tandem with interest rates, pretty much the opposite of how that relationship usually works.

Scott Minerd: – Tipping the scale toward high yield bonds. – Now that the risk of a near-term increase in interest rates has faded, we expect to see more stability in high-yield flows and more volatility in bank loans as mutual fund investors reposition to search for yield rather than protecting themselves from rising rates.

Motley Fool: – High-yield bond ETFs deliver value for investors. – The mere whiff of a change in Federal Reserve policy caused overselling in the bond markets recently, which naturally carried through to the bond ETFs. Unit values dipped with the breeze, regardless of the fact that large sections of the debts, notably corporate debts, weren’t affected at all by the issues.

 

Emerging Markets

BusinessDay: – HSBC strategists bullish on EM local bonds, stocks. – The outlook for inflation should determine investors’ cross-asset allocation, according to Pablo Goldberg, global head of emerging markets research at HSBC Securities, as the US Federal Reserve signals that the end of its quantitative easing policy is near.

Barron’s: – Thanks Congress, capital flowed out of EM, DM funds – equity and bonds. – In the week ending October 9, capital flowed out of EM equity and bond funds, but retail money’s risk-off attitude is extended to developed markets as well, data provided by Barclays analysts Durukal Gun and Koon Chow shows.

IFR: – Yellen nomination lifts emerging market debt. – Emerging credit markets have perked up on news that US President Barack Obama will nominate Janet Yellen to head the US Federal Reserve after Ben Bernanke’s term completes this year.

Randy Durig: – Achieving higher yields than EM bond ETFs with short maturity Yankee bonds. – At the completion of the third Quarter of 2013, we thought it would interest fixed income investors to compare the US dollar Yankee bonds that were acquired in our FX1 portfolio over the last 4 months with the iShares JPMorgan USD Emerging Markets Bond ETF and the iShares Emerging Markets Corporate Bond.

 

Bond Funds

Wealth Management: – Finding yield in short duration bonds. – Bond investors have been racing for cover. During the first eight months of the year, shareholders withdrew $49 billion from intermediate-term funds and deposited $17 billion into short-term funds, according to Morningstar. Rising interest rates triggered the migration. When rates climb, shorter bonds are relatively resilient. Recently investors who moved to shorter funds have been rewarded. For the eight months, intermediate funds lost 2.7 percent, while short-term funds declined 0.4 percent.

IndexUniverse: – ProShares’ Sachs on hedging bond-duration risk. – Steve Sachs, head of capital markets for ProShares, thinks an ETF strategy that hedges duration risk is smart. He thinks it’s so smart that he believes it has a place in both domestic and international markets. The only thing holding investors back from reaping the benefits of a strategy like the ProShares High Yield–Interest Rate Hedged fund (HYHG) is an education gap.

FT: – What does the recent pick up mean for bond investors? – Bonds are driven by interest rates, so often do best when people don’t – cheering on the rising bond prices that accompany recession and redundancies is not the best way to make new mates.

Fox Business: – Why I’m bullish on stocks and steering clear of bonds. – In 2013 equity markets through the end of September advanced in most parts of the world to finish with an overall gain of over +15% as measured by the Global Dow (GDOW). The equity markets in Europe, Asia, North and South America all finished in the plus column. Right now I prefer to overweight stocks versus bonds.

Business Insider: – Investors withdrew billions from Jeff Gundlach’s bond fund because of the taper threat. – Clients pulled $2.1 billion from Jeff Gundlach’s $35.1 fund in September, Bloomberg’s Alexis Leondis reports.

ETF Trends: – ETFs help investors navigate changing fixed-income landscape. – Investors are worried about income generation and volatility in the equities market. However, ETFs can help investors diversify and augment yields in their portfolios.

The Capital Spectator: – The wide, wide world of bond ETFs. – Bonds are in the news these days, and not necessarily for bullish reasons. Between the threat of rising interest rates and the possibility of a Treasury default in the US, the notion of fixed-income as a safe haven is under pressure. But while it’s tempting to lump all bonds into one category, the reality (as usual in the capital markets) is far more nuanced. Indeed, if someone gives you their view on the “bond market,” your first question should be: Which one?

David Fabien: – Four must watch trends in fixed-income ETFs. – David Fabien, Managing Partner at FMD Capital Management, says by analyzing areas of strength and weakness, we can determine what segments offer the best value given the amount of interest rate, credit, and other risks.

Trustnet: – Bull market in bonds isn’t over yet, says Webb. – Investors will still be able to make capital gains in bonds over the next couple of years, providing they pick flexible funds, according to Roger Webb, manager of SWIP Strategic Bond.

Fundweb: – Advisers warn against overdependence on equities as investors dump bonds. – Advisers are warning of an over-reliance on equities as investors increasingly sell out of corporate bond funds.

 

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