Are TIPS the New Safe Haven?…Detroit…and More!June 12th, 2012 by David Waring
Best of the Bond Market for June 12th, 2012
ETF Trends: Inflation Protection: TIPS ETFs are New Safe Haven - Bond investors have become comfortable with risking a lower payback than what they have invested for the benefit and security of inflation protection. Some U.S. bond exchange traded funds have become the latest hideout for inflation protection.
ETFDB: The Best of TIPS ETFs – Expenses, Dividends, and Returns - There are currently 13 TIPS ETFs with total assets of $28.3 Billion and expense ratios ranging from .14 to .5%. Gives a breakdown of the biggest, least expensive etc.
Learn Bonds: What are Treasury Inflation Protected Securities (TIPS)? - They are designed to protect investors from inflation, their principal changes in accordance with inflation, or more exactly with changes in the Consumer Price Index, which is how inflation is measured.
The Detroit News: Snyder: State will act if Detroit runs out of cash - Gov. Rick Snyder said today that Detroit is in a “crisis” and if the city runs out of money, he is ready to act to protect Detroiters and the state. Stopping short of saying he’ll appoint an emergency manager, Snyder said that if the consent agreement is breached, there are a “variety of steps” to follow through on first.
Fox Business: 596 Million Detroit Water And Sewer Muni Deal Postponed - Underwriters led by Goldman Sachs have postponed a $596 million municipal bond deal from Detroit’s water and sewer department. A reason for the delay wasn’t immediately forthcoming.
Refundtransit.org: How Wall Street Is Bankrupting Our Public Transit Agencies by Profiteering off of Toxic Swap Deals (h/t @cate_long) – (a 27 page paper) while riders are forced to bear the costs of solving transit agencies’ budget problems, the big banks on Wall Street are gouging many of these same agencies and the governments that fund them for more than half a billion dollars each year through toxic deals known as interest rate swaps.
Bond Buyer: Market Update – Market Post: Primary Gets Busy; Increased Activity in Secondary – On Monday, the 10-year yield closed steady at 1.90% for the third consecutive trading session while the 30-year closed flat at 3.18% for the second session. The two-year was steady at 0.32% for the seventh straight session. Treasuries were weaker Tuesday afternoon. The benchmark 10-year yield jumped three basis points to 1.63%. The two-year yield and the 30-year yield each rose one basis point to 0.29% and 2.73%.
MarketWatch: Treasury sees poor demand at 3-year auction – Indirect bidders, a group which includes foreign central banks, bought 27%, the lowest in more than two years and compared to 35.9% on average. Bidders offered to buy 3.53 times the amount of debt sold, in line with the average at the last six auctions of the maturities, according to Nomura Securities.
Bloomberg: Mortgages Beating Junk Bonds As Homes Top Europe – The $1.1 trillion market is holding onto gains in June after returning 0.53 percent in May for the fifth straight monthly increase, according to Amherst Securities Group LP. Junk-rated corporate bonds are little changed this month after losing 1.2 percent in May, and the Standard & Poor’s 500 Index has lost 6.7 percent this quarter.
Reuters: Ratings Agencies Don’t Have to Lie to Be Liable – For the last two years, U.S. District Judge Shira Scheindlin of Manhattan has been a dim ray of hope for investors who believe the credit rating agencies should be called to account for issuing rosy predictions about toxic mortgage-backed securities. In a pair of cases in which investors in two special purpose vehicles sued the major agencies, Scheindlin held that ratings weren’t protected by the First Amendment because they weren’t widely distributed.
ETF Trends: Europe Woes Sap High-Yield Bond ETF Demand – According to the Bank of America Merrill Lynch Global Broad Market Corporate 7 High Yield Index, yields on corporate debt rose to their highest since Feb. 21, reports Sarika Gangar for Bloomberg. The spread between corporate and Treasuries expanded to 3.19% as of June 6 from the year’s low of 2.64% on March 20.
Barrons: Muni Shoppers Can Find Bargains in 20 Year Bonds - Dan Berger of Thomson Reuters MMD says the best bargains are bonds due in 20 years. Berger says the municipal bond yield curve, which measures the difference in yields of similar bonds with different maturities, is flatter than either one year ago or six months ago and that there is little incremental additional yield to be found in bonds due in more than 20 years.
Businessweek: Gorman to Blankfein Treated as Junk Before Cuts: Credit Markets - Bonds issued by Morgan Stanley and Credit Agricole SA (ACA) have dropped to prices implying junk ratings, while credit-default swaps on Bank of America Corp. (BAC), Goldman Sachs Group Inc. (GS) and BNP Paribas SA (BNP) are trading as if the lenders were speculative-grade issuers, according to a separate Moody’s unit that analyzes market data. Even the harshest downgrades in the ratings firm’s review would leave those banks investment grade.