This Week’s Top Bond Market Stories – September 21st Edition

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Learn Bonds: – Bonds vs. Bond mutual funds. – So Which is better? Investing in individual Bonds directly or through a Bond Mutual Fund?

Learn Bonds: – Term premium: What it means to bond investors. – John Mason talks about the term premium. What is it and what does it mean to bond investors.

Learn Bonds: – Exchange-traded debt – A different breed of bonds. – Exchange-traded debt is a type of bond that, rather than trading over-the-counter, trades on an exchange. When examining the features of many exchange-traded bonds, investors will notice that they seem to be a hybrid of preferred stocks and more traditional bonds.

Learn Bonds: – Want income? You can find it here. – Income-focused investors may be interested in the junior subordinated debt of PPL Corp. Through its financing subsidiary, PPL Capital Funding, issued $400 million of junior subordinated exchange-traded debt earlier this year. It trades under the ticker PPX and is “fully and unconditionally guaranteed as to payment of principal, interest and any premium under the subordinated guarantees” by PPL Corporation.

MoneyBeat: – PIMCO’s Worah: More bullish on prices of TIPS after Wednesday’s Fed statement. – Pacific Investment Management Co., home to the world’s biggest bond fund, has resumed buying Treasury inflation-protected securities after a several-month hiatus, betting the debt will rebound following Wednesday’s decision by the U.S. Federal Reserve to stand pat on monetary stimulus.

Quartz: – Betting on natural disasters has been one of the best investments since the financial crisis. – Catastrophe bonds—essentially a gamble on the likelihood of natural disasters—have been the fifth best-performing asset class since the financial crisis, according to research conducted by Deutsche Bank (and shown above). If you had invested your money at the fall of Lehman Brothers in September 2008, only silver, gold, and high-yield debt from the US and the European Union would have made you more money.

IndexUniverse: – Mixed bond flows tell bullish ETF tale. – Investors have yanked $24 billion from bond mutual funds in the first two weeks of September, putting September already on track to being the fourth consecutive month of sizable redemptions from the segment. But they have also poured some $3 billion into bond ETFs, which seem to be continuing to chip away at mutual funds’ dominance by virtue of their lower costs, according to IndexUnvierse and TrimTabs Investment Research data.

Forbes: – The revenge of the bond boom. – For much of the summer, bonds and investors who owned them got kicked in the teeth as players in the financial markets anticipated that the Federal Reserve would start to taper its massive bond buying program in September. But the Federal Reserve shocked financial markets on Wednesday when it decided to keep buying $85 billion of bonds a month.

WSJ: – Strategies to protect a portfolio from a bond bear market. – Investment pros suggest some alternatives to help investors survive, or even profit from, a bear market in bonds.

Forbes: – Muni bond manager’s journal: When bonds turn negative, keep your perspective. – The likelihood of a positive return in municipal bonds this year is looking increasingly slim. Almost every one of the benchmark Barclays Municipal Bond General Market Indices for maturities of five years or longer experienced negative year-to-date returns through August.

FT: – Why the Fed did not make an exit. – The Federal Reserve refrained on Wednesday from reducing its experimental bond purchase program, thus maintaining its unconventional support for markets and the economy. In doing so it is probably signalling more than continuing worries about America’s tepid recovery, high unemployment rate and the risk of another round of self-manufacturing problems courtesy of Congress. It may also be signalling its concern about triggering renewed financial volatility that would undermine growth, job creation and global financial stability – worries that are unlikely to dissipate easily given the different reaction functions of the economy and markets.

FT Adviser: – High yield becoming more globalised. – High yield bonds are becoming more common worldwide, opening up new opportunities to fixed income investors, according to Hermes.

Reuters: – Foreigners buy U.S. bonds in July after June selloff. – Foreign investors rediscovered a taste for long-term U.S. securities in July as Japan and China increased holdings of U.S. government bonds, which had suffered a record outflow in June.

ETF Trends: – Time to get back to fundamentals in muni bonds. – The summer was a fairly tortuous one for muni bonds, with the S&P Municipal Bond Index having lost 5.57% between June and August. In fact, most fixed income sectors struggled as interest rates spiked after the Federal Reserve’s first hints of easing off quantitative easing. Notably, the volatility in the muni market over the past few months has had a lot to do with rates — and very little to do with credit events (even big ones like Detroit). Despite the volatility and headline noise, in my opinion, the reality is that the fundamentals underlying the municipal market are stronger than they have been in five years. A big statement? You bet. And here are just a few reasons to believe it.

CFA Institute: – Why it might not be crazy to buy bonds right now: Understanding the roll down. – Retail investors have been rapidly selling out of bond funds. That may look either wise or unwise with the benefit of hindsight, but one often-overlooked fact remains: New and existing bond investors now have the benefit of a much steeper yield curve. In fact, the “roll down” portion of a bond’s return is one of the most important (and often misunderstood) aspects of a bond’s total return.

Minyanville: – Are corporate bonds another bubble in the making? – The bond bonanza continued on Monday as another $8.75 billion of new corporate bonds were sold. The total could have been higher had a couple of deals not been pushed out to the next few days. The mood was even better in the derivatives space, with credit default swaps (CDSs) of large US financials down sharply, and the broad Markit HY CDX Index also tighter by a strong 13bps.

Mebane Faber: – Mom’s buying munis. – She has probably way too much US stock exposure for her risk tolerances (although her cost basis on some stocks is quite remarkable), and so we are rotating her out of the expensive (IMO) US stock market into bond opportunities, and balancing out the foreign exposure to over 50% of equity exposure.

Bloomberg: – Gross’s trade sours as bonds lose faith in Fed guidance. – Bond investors are losing confidence in the Federal Reserve’s pledge to keep benchmark interest rates at about zero into 2015 as the U.S. economy accelerates.

FT: – Corporate bonds vulnerable to renewed EM sell off. – Emerging markets have regained some poise after a foul summer. Signs of economic stabilisation in the developed world come just as weaker than expected US jobs data have cast doubt on the pace of likely Federal Reserve tapering, and bargain-hungry fund managers are helping trigger a recovery across most markets.

Zacks: –  A Great bond ETF for rising rates. – The fixed income world has experienced a huge broad sell-off in the past few months as interest rates continue to rise amid higher chances of the Fed curbing its stimulus soon.


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