Best of the Bond Market for April 4th, 2012
Tweet by @cate_long Research Report by Morgan Stanley
Morgan Stanley’s April 2012 Market Comment – Our Take: Great overview of how investors should be thinking about the current environment in Treasuries, Corporate, and Municipal Bonds. Here is the summary:
On Treasury Bonds: Although the recent momentum up in the yield of the 10 year treasury could be hard to reverse, in their opinion there is no reason for the yield on the 10 year treasury to go above 2.4% (currently at 2.22%), as “the cyclical peak in inflation has passed and Treasuries will continue to receive flight-to-quality flows emanating from Europe’s sovereign debt crisis”. They do however see better value in other areas of the bond market.
On Investment Grade Corporate Bonds: “These bonds offer relative safety and quality. In the US, yield spreads versus Treasuries are above average” They are overweight high quality US corporate bonds.
On High Yield Corporate Bonds: “In the event of another “growth scare,” yield spreads are likely to widen”. This means that they are expecting yields in the high yield market to go higher relative to other areas of the bond market and therefore are underweight junk bonds at the moment.
On Municipal Bonds: “We believe the tax-exempt market is in a better place than it was just a month ago. We have lifted our cautionary warning of the prior two months, and we continue to favor our focus maturity range of six to 14 years, which is where the largest yield increases have transpired. With regard to credit quality, we reiterate our preference for bonds rated mid-tier A and above for general-obligation bonds and essential-service revenue bonds, as well as AA-rated hospital bonds”.
Tweet and Cool Chart from @blackrock
High Yield Spreads Attractive Relative to Forecast Default Rates. Our Take: First off we found the chart interesting simply because it shows junk bond yields vs. default rates going back to 1996. Wether or not the fact that current yields are higher than forecasted default rates means there is value in high yield at the moment we will leave you to decide.
Chart of Junk Bond Yields vs. Default Rates
Article by The Financial Lexicon
Before you Buy These 5 Stocks, Consider the bonds - Our Take: We love The Financial Lexicon here at LearnBonds because he is one of the few bloggers out there who actually analyzes and gives trade ideas for individual bonds. The full article is well worth the quick read but here is the summary: The stocks of coal companies have been getting killed recently, to the point where many investors are starting to see value. Instead of as the TFL says “trying to catch a falling knife” with the stock, why not check out the bonds where you can earn some healthy yield while and benefit from price improvement when things turn around as well.
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