Could the Markets Handle a US Default?…Google Buys Junk Bonds…Reaching for Yield…and More!

January 17th, 2013 by

Reuters: – Preparing for the unthinkable: Could markets handle a US default? – Squabbling in Washington over the debt ceiling is again raising the specter that the United States may be forced to delay payments on its debt. While the stigma of a default would be damaging enough to investor sentiment, the chaos from a breakdown in financial markets’ systems that might result would be even scarier.

IFR: Google buys Junk Bonds - In an effort to get a return on their mountains of cash at hand, Google and others have purchased high-yield bonds and leveraged loans, while names likeMicrosoft and Apple are said to have dabbled in non-investment-grade securities.

Research Puzzle: – Reaching for yield. – The battle lines are drawn between those concerned about the reaching for yield going on these days and those who think that there’s nothing to worry about yet.  In meetings and calls, the question is asked over and over, “Is the high yield market a bubble?”

Investors Chronicle: – Junk bonds keep rising. – The debate that has dominated the early part of 2013 is whether an impending move into equities could undermine the rationale for the bond market investing. But the picture is, at best, mixed, especially in the US junk bond market, where the highest in-flows into high yield bond funds in six months have been reported.

Learn Bonds: – The problems with Morningstar’s mutual fund ratings. – If you’re like most investors, your primary concern when choosing a bond fund is how that fund is going to perform after you invest. That’s why the millions of investors who rely on the popular Morningstar ratings system may be surprised to learn that Morningstar ratings are only a grade on past performance and do not predict the future.

MarketWatch: – 5 money moves to cushion a bond-market meltdown. – The bond-investing train has left the station, Art Steinmetz is convinced. And it’s just a matter of time before it jumps the tracks. – Cat bond market poised to boom in 2013. – Increasing investor demand and new sponsor opportunities look set to make 2013 a bumper year for the catastrophe bond market. Thomas Whittaker reports.

BusinessWeek: – Fed concerned about overheated markets on bonds. – Federal Reserve officials are voicing increased concern that record-low interest rates are overheating markets for assets from farmland to junk bonds, which could heighten risks when they reverse their unprecedented bond purchases.

ETF Database: – Emerging markets bonds ETF cheat sheet. – As the U.S. market slowly wanders towards the road to recovery, many investors who had avoided the short term effects of the recession are now left scratching their heads, looking for a long term solution for slow American economic growth without risking everything. One option is to look through emerging market bonds, which often offer growth potential unparalleled in the US, without the risk of emerging equities.

Bloomberg: – California, unsaved, speeds toward a wall of debt. – C.A. Governor Brown last week released a budget that, in his own words said “advances a progressive agenda but does so based on available dollars.” Is California on to something? Is Brown’s formula — a combination of government idealism, tax increases and tough- minded budget choices — the answer for the nation, as well?

Reuters: – Muni bonds’ US tax breaks will remain. – Philip Fischer, an expert on municipal finance with consultancy eBooleant, who has more than 25 years experience in the muni market, says he expects the tax-exemption to stay in place. Here’s why.

FT: – Investors rediscover eurozone bank bonds. – Fortune favours the brave and at present eurozone banks are the beneficiary of such daring by US-based investors. In the rush for high returns, some US investors are snapping up the new debt issues of eurozone banks, returning to a sector they have shunned for the past few years amid the region’s debt crisis.

The Economist: – Electronic bond exchanges are finally making a connection. – Equities have almost completed the transition to electronic trading but the telephone still plays an inordinately important role in the bond market. Big investors continue to shop for bonds by placing calls to a handful of large dealers. The common reason given is that bonds come in so many forms, with their varying coupons, maturity dates and covenants, that the standardisation that electronic markets require is impossible, but all that is about to change.

Bloomberg: – Mayors seek to prevent elimination of US muni-bond tax break. – US mayors urged President Barack Obama and Congress not to curb tax breaks given to investors in the $3.7 trillion municipal-bond market, saying it would increase borrowing costs and hurt the economy.

CNBC: – Muni bonds may still not be safe from congress. – Municipal bond prices are bubbling up again as investors load up on the seemingly safe bet of tax-exempt bonds. But buyers should beware.

Kiplinger: – Risks gathering in municipal bonds. – The manager of Fidelity Intermediate Municipal Income says he has grown cautious following munis’ strong returns and large inflows into muni funds.

Reuters: – Fed’s Lockhart sees bond buying beyond mid-2013. – The Federal Reserve will very likely need to continue its large-scale asset purchases into the second half of this year, since a big improvement in the U.S. labor market is unlikely to have happened by then, a top central bank official said on Thursday.

FT: – EM Corporate bonds: Getting frothy? – With about $300bn issued last year and a similar amount expected this year, surely the market for EM corporate bonds is getting a bit frothy?

Institutional Investor: – European corporate bonds set to challenge investors again. – The recent spate of bond issuance may not last long as companies have prefunded much of their needs. That will make it even harder for yield hungry investors.

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