Fed Comes out Swinging…Mortgage Bonds Soar….Gross Cuts Treasury Holdings…and more!September 13th, 2012 by Simon G
Best of the Bond Market for September 13th, 2012
BK Asset Management: The Fed comes out swinging - With a commitment to buy $40 billion worth of mortgage-backed securities on a monthly basis with no expiration date, there’s no going back as the floodgates are officially open. When combined with the continuation of Operation Twist to the end of the year, this amounts of a total of $85 billion in purchases by the Federal Reserve for the next 4 months.
WSJ: As Treasuries sell off Mortgage bonds soar on Fed action - The plan, to buy $40 billion of mortgage bonds a month, surprised traders and investors, who had been loading up on the securities for months, especially in the past week after the August employment report confirmed a lackluster labor market.
Michael Aneiro: What can QE really achieve? – “You can lead a horse to liquidity…but you can’t make him borrow.”
SF Gate: Bill Gross cuts treasury holdings - Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., reduced his level of Treasuries last month to the lowest since October.
Hype Zero: AIG Bond yields look tempting - Another way to play AIG is buying the $25 denominated 7.70% Series A-5 Junior Subordinated Debentures.
Reuters: – US city revenues still falling but the worst is over. – U.S. cities face falling revenues for a sixth-straight year but their finances have passed the worst point in the wake of the recession, according to a report released on Thursday by the National League of Cities.
BondBuyer: – Tax exemption is top priority for National Association of State Treasurers. – Threats to eliminate or curtail tax-exemption on municipal bonds are a top concern for state treasurers and they plan to closely monitor proposals as a new Congress and White House are elected in the coming months.
Washington Post: – Moody’s might downgrade the US. And why shouldn’t it? – Moody’s warning is simple: “Budget negotiations during the 2013 Congressional legislative session will likely determine the direction of the US government’s Aaa rating,” the agency said in a statement. “If those negotiations lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term,” then the U.S. will keep its Aaa credit rating. If those negotiations fail, it will probably be knocked down by one notch.”
BondBuyer: – House committee passes muni advisor bill. – The House Financial Services Committee passed a municipal advisor bill Wednesday after striking a requirement that muni advisors have written agreements with issuers, one of the bill’s most contentious provisions.
BusinessWeek: – Wall Street never loses on bad interest-rate swaps. – Wall Street banks stand to make more than $300 million from a deal to terminate the controversial interest-rate swap agreements sold to Detroit. Michael Greenberger, an expert on derivatives at the University of Maryland’s law school said, “They’re paying huge amounts of money for interest-rate transactions that have gone horribly wrong.”
Learn Bonds: – Defined Maturity Bond Funds – Don’t Confuse These Great Products With Target Date Funds. – Defined maturity funds, which are also known as defined end date funds, have been around for a few years, but have yet to become very popular. Once interest rates start rising, we believe that many investors will start switching from traditional bond funds to defined maturity funds.
ETF Trends: – Finding the best ETFs for emerging market bonds. – Bond assets play an important role in any traditional investment allocation strategy, but now, investors may utilize exchange traded funds to diversify away from U.S. debt and gain exposure to emerging market bonds. Emerging market bond ETFs are also offering attractive yields.
Bond Squawk: – Nearly half of corporate investors turn bearish despite outperformance. – Despite the possibility of a slowdown in US economic growth, corporate bond yields have compressed and continue to remain low in recent months. While the weakness in earnings has yet to show up in the fundamental channel of corporate bond valuations due to the overwhelming demand for the asset class, corporate bond fund managers have taken note apparently and have adjusted their positions.
BusinessWeek: – Commercial-Mortgage bond sales signal growing appetite for risk. – Investors are devouring commercial- mortgage bonds at the fastest pace since 2007, with a deal that incorporates an underwriting practice that helped fuel the bubble sold at the tightest relative yields in 18 months.
It’s under appreciated how the real estate bubble gave cities the funds to over expand and now cities must hyper-contract… #muniland
— Cate Long (@cate_long) September 13, 2012
Gross: Fed to buy 35% of avg monthly mortgage origination. A big #. Focus on 30-yr lower coupons. Treasury/mortgage spreads 2 narrow further
— PIMCO (@PIMCO) September 13, 2012
Bernanke “main problem is lack of demand…but when their 401Ks look better more likely to go out and spend”#cenbankmagictricks
— Cate Long (@cate_long) September 13, 2012
The 10-year muni-Treasury ratio, which has reliably been more than 100 since mid-May, fell below that yesterday as Treasury yields climbed.
— Brian Chappatta (@BChappatta) September 13, 2012