According to an article in todays Bloomberg News, bond investors are feeling a little downbeat about the state of the economy. In fact they haven’t been this down about growth and inflation in the U.S. economy since 2008, when the bottom fell out during the financial crisis.
Bond investors are decidedly pessimistic because falling joblessness and a strengthening economy hasn’t translated into consistent wage gains or consumer demand that was prevalent pre-crisis, said Bradley Wilson, a fixed-income manager at Boston Private Wealth Management, which oversees $9 billion.
“Maybe the U.S. can’t diverge and grow on its merry way,” said William O’Donnell, the head U.S. government bond strategist at Stamford, Connecticut-based RBS Securities Inc., one of 22 dealers that trade directly with the Fed.
Treasury yields keep hitting one low after another, a sign that some investors believe the broadening recovery could yet give way to a bout of deflation – the kind that hinders investment and spending – as oil tumbles and global growth deteriorates. One bond-market metric already suggests consumer prices will drop in the next year.
However, what’s happening in the $12.5 trillion market for Treasuries reflects a confluence of several powerful forces, not all of which necessarily spell doom for the U.S. economy. Do bond investors really have anything to worry about? Read the full article and make up your own mind.
Todays Other Top Stories
Learn Bonds: – Investors look to bond volatility as yields tighten. – Bond yields have been compressed for years by the actions of the Federal Reserve, and things aren’t set to get better. As the European Central Bank sets up for its own interference in the price of bonds, debt investors are looking for ways to cash in on bond investment even as yields become worthless.
ETF News: – Muni ETFs may be more attractive than Treasuries. – Municipal bond exchange traded funds have been on a tear, and the munis market still looks relatively cheap compared to U.S. Treasuries.
Bond Buyer: – Muni market participants applaud QPIB, water proposals. – Municipal market participants applauded President Obama’s proposal on Friday to create a new type of tax-exempt municipal bond that could be used to help finance public-private infrastructure projects, but one questioned whether it will pass muster with Congress.
Bloomberg: – Muni funds that already outperform peers given more flexibility by Goldman, BlackRock. – The Goldman Sachs arm, which oversees $37 billion in munis, changed its core tax-free mutual fund this month to give it flexibility to extend or shorten maturities and buy junk debt.
Reuters: – Bond funds worldwide attract $6.9 bln inflows in latest week. – Investors worldwide poured $6.9 billion into bond funds in the week ended Jan. 14, marking their biggest inflows in nine weeks, data from a Bank of America Merrill Lynch Global Research report showed on Friday.
FT: – Sell-off in sector fails to materialise. – (Subscription) Fixed income has not been the big casualty of tapering that some initially feared.
WSJ: – Foreigners buy U.S. assets in Nov, led by agencies, corporates. – Foreigners bought long-term U.S. securities in November, with investors buying agency and corporate bonds, as well as equities.
Barron’s: – A New Year and falling yields. – So far, this January looks a lot like last January, with Treasury yields going down instead of up. This may be good news for bond investors, if not for other financial sectors.
WSJ: – Fed officials on track to raise short-term rates later in the year. – While Europeans weigh bond-buying program to boost growth, U.S. officials are upbeat on America’s economic prospects.
WSJ: – Corporate-bond investors anticipate giant deals. – Investors and bankers are bracing for another wave of giant corporate-debt sales this year, as companies rush to tap abundant demand while rates stay low.
High Yield Bonds
Fidelity: – High yield bond market discussion and 2015 outlook. – Join us to hear from Fidelity’s High Income Division as they discuss some of the key issues that impacted the high yield market in 2014 and provide an outlook for 2015. Attendees will also hear about products offered by Fidelity to help meet investors’ needs. A question and answer session will follow.
WSJ: – Where to exit the market herd. – (Subscription) Going with the crowd might have helped in high school, but it’s not necessarily a good investing tactic. With that in mind here are three contrarian investment plays.
FT: – Energy bondholders at risk as bank loans ebb. – (Subscription) April in Texas traditionally marks the start of the spring thunderstorm season. This April, the tempestuous weather looks set to be accompanied by an additional financial squall for the state’s oil and gas companies as banks begin cutting back on the reserve financing on which these firms rely.
ETF Trends: – Corporate bond ETFs: Oil-induced default risks are overblown. – Despite concerns over debt issued by energy producers in a quickly falling oil market, corporate bond markets and related exchange traded funds face low default risks.
Emerging Market Bonds
BusinessDay: – Nigeria bonds to remain on JPMorgan index despite negative watch. – Nigerian bonds will most likely remain on the JPMorgan Emerging Markets bond index despite the recent negative watch placed on them by JPMorgan.
Money Beat: – Warnings grow over emerging market debt. – A rapid buildup of U.S. dollar debt in emerging economies is increasing the links between monetary policy in major economies with that in the developing world, posing a growing risk as the direction of interest rates diverge between major central banks.
Bloomberg: – One in five distressed corporate bonds are made in Moscow. – One of every five distressed corporate bonds worldwide call Russia home following a more than tenfold increase since November as sanctions bite further into economic growth.
Environmental Finance: — Winds of change blow through cat risk markets. — Growing investor demand for catastrophe exposure is helping the insurance sector change how it manages natural disaster risk, Barney Schauble of Nephila Advisors tells Environmental Finance.
Bloomberg: – Bond investors face trillion-dollar choice between safety and yield. – Investors across the globe are facing a trillion-dollar dilemma: either pay up for the safety of lending to nations like Germany and Switzerland, or buy riskier debt at a time of faltering economic growth.
Investment News: – Core bonds a key in diversification. – Credit quality and duration will be important for investors in an increasingly volatile market.
WSJ: – Bill Gross: Buy TIPS and this closed-end fund. – (Subscription) Barron’s Roundtable member Gross reflects on the dangers of global debt, and suggests two ways for investors to profit in a low-rate environment.
Joseph L. Shaefer: – How to build a ‘lifetime’ portfolio (Step 1). – This is the time of year when most investment writers predict what will happen in 2015. What I’d rather offer, however, is what is “most” likely to happen this year, next year, or the next 10, 20 or 50 years.
Investment News: – Five surprise investment themes for 2015. – From a big year for European equities to precious metals and bonds, here are some ideas of where value may lie in 2015.
FT: – Fixed income managers pile into government debt. – (Subscription) Bond managers are piling into government debt after their performance suffered from failing to spot the opportunities in the top-performing asset class.
Investment News: – Bond ETFs defied pundits in the fourth quarter. – Markets had an unexpected reaction to the end of quantitative easing: Bonds rose in value.
Morningstar: – How do Fidelity’s new bond exchange-traded funds stack up? – Fidelity follows PIMCO’s footsteps in launching actively managed bond ETFs.
“ECB plans to approve purchase of govt bonds removes pressure on countries to follow through with reforms” – Germany’s Lars Feld
— zerohedge (@zerohedge) January 19, 2015
For reference, the record low yield for 30-Year Treasury bonds was 2.353% on Friday…we’re now 2.378% $TLT
— Dominic Chu (@TheDomino) January 20, 2015
The impact of QE is fun to discuss but there’s no counter-factual to $4T+ bonds being purchased and rates being far lower
— David Schawel (@DavidSchawel) January 20, 2015