A Bubble in Junk Bond Bubble Talk…Bill Gross Eats Own Cooking…Dems Better for Bonds?…and More!October 15th, 2012 by Simon G
Best of the Bond Market for October 15th, 2012
Reuters: – Headlong dash for “junk” raises alarm. – In the seemingly obsessive search for the next bubble in global markets – an understandable if hyper-sensitised reaction to missing the last one – speculative credit remains a prime suspect.
Financial News: – Bubble, bubble, junk bond trouble. – Investors desperately seeking returns are pumping money into the junk bond market in record numbers. The recent release of Petco Junk Bonds two weeks ago proves the point, they were heavily oversubscribed and the yield fell to just 8.625% which doesn’t accurately reflect the risk these bonds represent.
Barrons: – Bill Gross eats his own cooking and buys a pair of PIMCO CEFs. – The fact that Bill Gross eats his own cooking is one reason many investors own PIMCO closed-end funds despite their often hefty premiums. Disclosures show that, last week, as CEFs with rich premiums were selling off heavily, Gross bought shares of two PIMCO offerings as their prices weakened.
Bloomberg: – Democrats better for bonds. – The idea that Democrats are big spenders and bad for bonds while Republicans are deficit hawks is being turned on its head in the $10.8 trillion market for U.S. Treasury securities.
The FT: Will central banks cancel government debt? - One radical option which is now being discussed is to cancel (or, in polite language, “restructure”) part of the government debt that has been acquired by the central banks as a consequence of quantitative easing (QE). After all, the government and the central bank are both firmly within the public sector, so a consolidated public sector balance sheet would net this debt out entirely.
ABC News: – Municipal bond scare stories mask strong returns. – Municipal bonds used to be the quintessential safe-but-dull investment. But ominous headlines about cities, recently filing for bankruptcy, have spurred some investors to rethink these investments. But with index returns of 5.82 percent per year for the five-year period ending in July compared to 1.1 percent returns for the S&P 500 are these concerns unfounded?
MarketWatch: – No bond bubble says New York Fed Chief. – The Federal Reserve’s expansionist monetary policy has not created a bubble in bond yields, the president of the Federal Reserve Bank of New York said Monday.
Learn Bonds: – Q3 Update: World Central Banks temporarily soothe the market but worry long-term investors. – Emerging market bonds had a stellar quarter – up almost 7%, while long-term treasuries where slightly negative down less than a quarter percent. What could explain this difference? The Fed and the ECB have been heavily involved in the markets. During June, the end of the second quarter, there were questions if the Fed would engage in another round of quantitative easing.
MarketWatch: – Bond people are worrying more about going over the fiscal cliff. – Investors who buy and hold Treasury debt are showing more signs of concern that U.S. policy makers will drop the ball and let the country go over the fiscal cliff.
FT: – Bond sell off fears. – Among the warnings sounded by the International Monetary Fund last week was one over the dramatic surge of foreign investment into emerging market local bond markets.
The Street: – QE3 revs up emerging-market corporate bonds. – QE3 is benefiting ETF investors with a longer-term focus. For instance, the electronic creation of new U.S. dollars coupled with waning demand for Treasuries is bolstering corporate debt. Even more eye-catching, investors are attracted to emerging market corporate debt as well as currencies backed by countries with less desperate monetary policies.
Schaeffer Research: – Great charts on fund flows into bonds and out of stocks. – Take a look at this chart which shows the difference between bond inflows and domestic equity fund outflows over the past year. Taken in context of how strong the overall equity markets have been, it’s simply amazing.
Bloomberg: – Investors continue to pour into munis. – Investors are pouring the most money in two months into the $3.7 trillion municipal market, helping U.S. local governments lower costs during the biggest borrowing wave since June.
Jason Voss: – Investing in bonds will be nothing like the past 20 years. – At the recent CFA Institute Fixed-Income Management Conference in San Francisco, Blackrock Chief Investment Officer Rick Rieder contended that in the wake of the Great Recession the fixed-income market is undergoing structural changes that have not been present for at least 20 years.
FT: – California School district CAB ballot papers are deceptive say market participants. – During November’s election cycle, California voters will decide on bond issuance measures for school districts. But the structuring of those ballot initiatives might be deceptive for voters and investors, said two school district bond market participants.
Sober Look: – California munis return from the dead. – In another sign of strong demand for fixed income product (basically anything with extra yield) the muni market has been quite strong. In particular the tightening in the California’s bonds has been extraordinary.
Gross: Even with high-octane QE, asset prices (bonds & stocks) seem to have plateaued. Find safe carry and be content.
— PIMCO (@PIMCO) October 15, 2012
lots of #muniland deals pricing for retail today.. unusual for a monday. but being received well
— Taylor Riggs (@TaylorRiggs_BB) October 15, 2012
Muni dealers operate in a regulated market @munitrader Other trading firms, equity, corporate bond etc, give data to regulators for free.
— Cate Long (@cate_long) October 15, 2012
Junk gonna be a choppy week here. They will jam in last few deals before earnings blackout. Expecting whipsaws, and generally weaker CCCs.
— JunkBondMom (@junkbondmom) October 15, 2012