Doug Kass Sticks to his Guns….Third Quarter Bond Market Returns….Banks Bet Big on Muni’s…and more!

October 1st, 2012 by

Best of the Bond Market for October 1st, 2012

The Street: – Why I’m shorting bonds – Doug Kass. – I maintain the view that shorting the U.S. fixed-income market is still the trade of the decade. And, despite the known headwinds of slowing domestic and non-U.S. economic growth and the threat of the fiscal cliff, I now believe that the potential exists for bonds to experience pricing pressure (and an increase in bond yields) over the near term.

About.com: – 2012 Third Quarter Bond Market Returns. – A hearty revival in investors’ risk appetites led to robust performance for higher-risk asset classes and flat performance for U.S. Treasuries during the third quarter.

Bloomberg: – Banks’ biggest local-debt bet since ’85 fuels rally. – Leading U.S. banks are making the biggest bet on municipal debt in 27 years, helping fuel the longest rally in state and local bonds since 2001.

Bloomberg:Stocks beat bonds with longest rally since 2007. – Emerging markets led global stocks to the fourth monthly gain in September, the longest streak since 2007, handing equity investors better returns than bonds, commodities and the dollar and pushing them ahead for the year.

MarketWatch: – Pimco’s El-Erian says ‘mini-bargain’ could cut hit from fiscal cliff to 1.5%. – Mohamed El-Erian, co-chief investment officer at Pimco, expects Congress will strike a “mini bargain” after the election next month that will shave about 1.5% off of U.S. economic growth – a big difference from the 4% chop that fully falling off the fiscal cliff would entail.

Ritholtz: Fidelity’s bond funds now larger than equity offerings. – Bond and money market assets at Boston-based Fidelity now total $848.9 billion, more than half of the company’s $1.6 trillion in managed assets.

Minyanville: – The unintended consequence of open ended QE. – Since the Fed announced QE the volatility in the bond market has been intense, and I think this is indicative of how it will trade for months to come.

MarketWatch:Bond fund managers favor corporate debt. – Bond mutual funds rallied in the third quarter, continuing to ride the favorable tailwinds of slow global economic growth and central bankers’ low interest-rate policies.

Barrons:The bond market’s ETF bid. – They’re calling it the “ETF bid” — the idea that corporate bond prices get juiced when passively managed funds have to buy them. It’s known to happen in thinly traded stocks in some instances. So it shouldn’t come as a surprise that thinly traded, idiosyncratic markets like high-yield bonds are seeing a similar effect.

Barrons:Are high yield bond index ETFs distorting the market? – Flows in and out of bond-index ETFs can distort prices as the underlying bonds swing higher and lower. ETFs like AdvisorShares Peritus High Yield avoid the “ETF bid” by buying bonds outside the indexes’ purviews.

Research Puzzle:Thinks individuals should not buy individual junk bonds – The Research Puzzle criticizes Financial Lexicon’s article on junk bonds.

Learn Bonds:The Financial Lexicon Disagrees – In response to Tom Brakke’s criticism on Research Puzzle, Financial Lexicon clarifies his point.

Sober Look:Investment grade corporate bonds are now “priced to perfection“. – All this makes corporate bonds increasingly vulnerable to risks in the Eurozone, particularly if spreads widen more than treasury yields decline.

Pensions&Investments:Investors move down the credit ladder to find yield. Stretching for yield, institutional investors in fixed income are looking for more efficient ways to move down the credit spectrum and diversify subinvestment-grade debt portfolios.

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