A Bursting Bond Bubble Worse for Stocks…4 High Income Bonds…Junk Bond Non-Bubble…and more!November 29th, 2012 by Simon G
Nerd’s Eye View: – Why being invested in bonds at today’s rates may be entirely rational after all. – As retail investor continue to rotate from stocks to bonds – there is increasing concern that investors may soon be blind-sided by at best a savage bond bear market, and at worst a bond bubble that pops. But are investors really buying into bonds because they’re bullish on bonds, or because they’re bearish on stocks with few appealing alternatives?
Bond Squawk: – 4 high income bonds to insulate against rising interest rates. – While interest rates remain low, the need for income remains high for investors as market uncertainty can create volatility in asset prices. That said and as the search for yield continues, the risk of rising interest rates remain in the back of investors’ minds. Here are four higher yielding Investment Grade Bonds with Shorter Maturities that may insulate against price risk in a rising interest rate environment.
Humble Student of the Markets: High yield bonds now yield less than stocks for the first time ever - Stocks are cheap compared to high-yield bonds, but they aren’t screamingly cheap on an absolute basis.
The Street: Not all data is supportive of the junk bond bubble thesis - Records aren’t being set because new companies are entering the market to add to their debt pile – and there’s a big difference between companies refinancing and those that are levering-up, even if the distinction isn’t borne out in data.
Seeking Alpha: 12 month default rate drops to 1.9% in October - but don’t be surprised to see a mini-surge in the year’s last two months as 5 are already in the pipeline.
Timothy McIntosh – Bond strategies for a return to the 1940′s - a preference for individual bonds over funds, adding to corporate bonds when spreads are high, and maintaining small positions in interest rate hedges to offset inflation risk.
Bloomberg: – Investors unprepared for bond danger, BlackRock’s Rosenberg says. – Investors are “putting a back-up generator in the basement of a flood-prone area” by piling into longer-dated fixed-income securities with yields at about record lows, according to BlackRock Inc.’s Jeffrey Rosenberg.
Bloomberg: Detroit heads towards the edge - Detroit had its bond ratings cut deeper into noninvestment-grade territory by Moody’s Investors Service, citing a cash crisis that may mean bankruptcy or default in the next 12 to 24 months.
WSJ: – Fed stimulus likely to continue well into 2013. – Three months after launching an aggressive push to restart the lumbering U.S. economy, Federal Reserve officials are nearing a decision to continue those efforts into 2013 as the U.S. faces threats from the fiscal cliff at home and fragile economies elsewhere in the world.
The Street: – Bond market flashes ‘warning’ for stocks. – The relationship between stocks and bonds is a useful way to gauge investor sentiment. Those two markets tend to have a negative correlation most of the time, but not always.
Cate Long: – Sallie Krawcheck should not run the SEC. – The New York Times reported on Wednesday that Sallie Krawcheck, formerly of Citi and Bank of America, is the leading contender to be named chairman of the Securities and Exchange Commission. Let’s hope that President Obama comes to his senses and names someone more fit to the post.
FT: – Puerto Rican bonds shunned. – Investors are penalizing Puerto Rico for its soured finances, shunning its bonds even as they clamor for municipal debt to offset an anticipated increase in taxes next year.
Bloomberg: – Shell said to lead $5.4 billion in corporate bond sales in US. – Royal Dutch Shell Plc (RDSA), Europe’s largest oil producer, plans to issue benchmark debt as it leads corporate bond sales of at least $5.4 billion today in the US.
Learn Bonds: – PIMCO’s BOND ETF is better than the PIMCO Total Return Fund. – The PIMCO Total Return ETF (Ticker: BOND) is supposed to be the ETF version of the most popular bond mutual fund in the world, the PIMCO Total Return Fund. The ETF and Mutual Fund share the same portfolio manager (Bill Gross) and are managed using the same strategies. However, the returns for the two funds are very different.
FT: – More Emerging Market bonds on the horizon. – Another week, another wave of emerging market companies and governments gearing up to sell bonds.
MarketWatch: – Treasuries more leery of latest fiscal-cliff hopes. – Treasury prices held their ground on Thursday as other markets considered more risk-sensitive gained ground following further signals that Washington will prevent the economy from suffering under the full load of looming tax hikes and spending reductions.
LA Times: – California school districts face huge debt on risky bonds. – About 200 districts have borrowed billions of dollars using so-called capital appreciation bonds. Districts may have to pay 10 to 20 times the amount borrowed.
ETF Trends: – High-yield muni bond ETF paying over 4%. – The Market Vectors High-Yield Muni ETF (NYSEArca: HYD). With investors focused on the U.S. fiscal cliff and pending tax hikes, this muni bond ETF could help shield investors from federal taxes while providing an attractive yield.
Bloomberg: – A number of NJ cities could be hit in the wallet after Sandy. – Brick Township, on the New Jersey Shore, estimates its costs to clean up from Hurricane Sandy equal more than half its $87 million annual budget. Such expenses “do not fundamentally threaten long-term credit quality” because issuers will recoup most of those costs. However, a limited number of issuers have been so heavily impacted by Sandy that their ratings could be affected, including New Jersey towns, Brick, Atlantic City and Seaside Heights along the shore and Woodbridge.
Gross: Core PCE at 1.6% YOY suggests QE and 25 basis FF for a LONG TIME.
— PIMCO (@PIMCO) November 29, 2012
— Taylor Riggs (@TaylorRiggs_BB) November 28, 2012
Treasury goes 3-for-3. 7-yr Treasury auction also sees strong demand to wrap up this week’s auctions. Thank you #fiscalcliff
— AnthonyValeri (@Anthony_Valeri) November 29, 2012
FITCH AFFIRMS DETROIT, MICHIGAN GOS AND COPS RATINGS — ‘CCC’, ‘CC’ and ‘CC’[desperately weak ratings] #muniland
— Cate Long (@cate_long) November 29, 2012
have been flipping munis like they’re houses and its 2004. exiting stuff we bought less than a month ago at nice gains #muniland
— Muni Trader (@MuniTrader) November 29, 2012