10 Year Prices at Highest Yield Since March…The Chart Looks Bullish…BlackRock Rushes to the Short End…and More!

February 13th, 2013 by

Zero Hedge: – 10 year prices at 2.05%: Highest yield since March 2012. – It was well-known that today’s 10 Year auction would price somewhere north of 2.00%, for the first 2%+ print since April of 2012. Sure enough, moments ago the US Treasury priced $24 billion in 10 Year paper at a high yield of 2.046%, the highest since last March when we had a 2.076% 10 Year auction (and a carbon copy environment in which every pundit was screaming about a great rotation out of bonds), only to see the April and especially May auction tumble in yield when Europe once again became unfixed.

Bespoke Investment Group: The 10 year treasury chart looks bullish - based on its chart pattern, it looks to just be re-charging for another move higher.

Bloomberg: – BlackRock rushes to short end as Goldman alarmed. – The world’s biggest buyers of corporate debt are seeking refuge in shorter-maturity bonds as concern deepens that a three-decade rally will end in losses as interest rates rise.

ETF Trends: – Short-term bond ETFs for rising rates. – Historically low yields have been around over the past year and speculators are anticipating a rise in interest rates should the economy recover. Investors have congregated into fixed income exchange traded funds as a result, but where should they go next if inflation sets in and bond yields rise?

Pragmatic Capitalism: Comparing stock and bond market drawdowns – Not surprisingly stock market drawdowns are more than twice as deep on average than bond market drawdowns.

Institutional Investor: – Emerging markets local fixed income poses more risk than many perceive. – These assets comprise both a bond and a currency component. Investors should take two separate decisions and hedge the foreign exchange exposure to maximize returns.

Learn Bonds: – 5 Ways to increase profits from an emerging markets bond pro. – I recently sat in on a presentation by Luz Padilla who manages the DoubleLine Emerging Markets fund.  In the presentation she gave 5 concrete examples of how investors can increase the profitability of their emerging market bond investments.

Abnormal Returns: – The changing nature of target date bond ETF investors. – The “ETF-ization of everything” is an ongoing theme here at Abnormal Returns. It represents one of the big thorns in the side of the rise of ETFs. In short, the ETF industry in its drive to create new and novel ETFs is in fact changing the underlying nature of markets themselves. Let’s look at a new example.

Institutional Investor: – Investors use bond ETFs to sidestep broken fixed-income markets. – One reason for the surging popularity of fixed-income exchange-traded funds is that money managers, pension funds and other investors are using them to prepare for a flooded bond market when interest rates rise. Because ETFs are so easy to trade, they allow portfolio managers to react quickly to credit events.

John Cole Scott: – Top 1% muni bond Closed End Fund (CEF). – In search of a Municipal CEF with “better than average” returns. Here is the answer.

MarketWatch: – Tax exempt municipal bonds are the way to rebuild America – Says Municipal Bonds for America (MBFA). – After President Obama’s call for a partnership to rebuild America. Municipal Bonds for America says tax exempt municipal bonds are the way to achieve it.

Interactive Investor: – Will corporate bonds run out of steam? – A typical fund, M&G Corporate Bond, has shown a 60% gain in the four years since the end of 2008. Surely there must now be a case for switching the emphasis elsewhere?

Market Oracle: – Bond market bubble expectations. – Bonds are loans that have the expectation of payback with interest. Government bonds are viewed as the safest financial instrument since the primary fiscal obligation of the state is to honor the terms of their own notes. However, in the fevered climate of currency wars among central bankers, the security factor of capital repayment is rapidly coming into question. As interest rates rise, the economic value of the bond diminishes. This inverted normal relationship is the essential dynamic of lending money with the purchase of Treasury Bonds. So what is all the talk about a bond bubble and likelihood that it will destroy your underwriting capital?

Barron’s: – Bondholder LBO worries: Overblown, but under-priced. – As if investment-grade bond investors didn’t have enough worries between record-low yields and elevated interest-rate sensitivity, the Dell Inc (DELL) leveraged buyout has brought out some recurring LBO fears that the nice investment-grade company you own could become the target of a big, debt-heavy buyout and those high-grade bonds will disintegrate into junk.

Barron’s: – Amid European junk-bond boom, fears (and signs?) of a bust. – Some of the newly issued junk bonds have fallen in trading on the secondary market, as investors become concerned about the outcome of this month’s elections in Italy and a corruption scandal in Spain. An increase in European corporate-default rates or a worsening of the US fiscal situation also could dent the market.

Pragmatic Capitalism: – Stock and bond drawdown’s – Historical perspective. – Proper portfolio construction is all about understanding how different asset classes operate relative to one another.  And while the past doesn’t perfectly rhyme with the future, it does provide us with a better general understanding.

WSJ: – Hunt for yield sows junk-bond boom. – Investors have developed an appetite for European junk, sending a flood of money to some of the riskiest companies in the region. The move—part of a global “search for yield” by fund managers seeking assets with higher returns—is proving a boon for scores of European companies, including many in Southern Europe that had been shut out of the bond market for much of last year. A number of corporations are rushing to raise funds while they can, amid concerns that the euro-zone crisis could flare up.

Motley Fool: – Apple fiasco proves that fixed-income could blow up. – To me, the fixed-income marketplace appears to be overheating.  There certainly could be more upside, but I see four distinct areas where yields are getting pinched.  Here is a look at yields, asset prices.

Artemis: – Lack of new cat bonds makes secondary trading opportunities elusive in January. – Lower than expected issuance levels of new catastrophe bonds and insurance-linked securities so far this year has made secondary cat bond trading opportunities elusive, according to one ILS fund manager.

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