Fitch Predicts 2% HY Default Rate in 2013…EM Spreads Hit Pre Lehman Lows….Muni Tax Fight Heats Up..and More!December 20th, 2012 by Simon G
Seeking Alpha: Fitch predicts 2% high yield bond default rate in 2013 - Smooth sailing is predicted in 2013 for the high-yield market by Fitch, which sees a 2% default rate, the same as this year.
FT: – Is it all over for emerging market bonds? – In spite of being the ‘must have’ asset class this year, emerging market (EM) bonds may have had their day, as spreads hit pre-Lehman lows.
NY Times: – Municipalities fight a proposal to tax muni bond interest. – Mr. Firestine, the top government administrator in Montgomery County, Md., is on the front lines of a lobbying campaign by local and state governments, bond dealers, insurers and underwriters that is trying to pre-empt any attempt to limit or even kill the tax exemption. But they’re fighting an uphill battle?
Real Clear Markets: – The muni bond tax break is a tempting reform target. – The removal of tax exemption from municipal bonds may seem like a bad idea at first, but far too many local governments have gotten into trouble by gorging on cheap debt. Maybe it’s time they learned to cut their cloth accordingly; taxing muni bonds may force then to do just that.
Pragmatic Capitalism: – Yield spread between junk bonds and stocks. – This chart from David Schawel shows the spread between the yield on junk bonds and the yield received from holding stocks. The spread recently turned negative for the first time ever, showing just how much the yields on high-risk bonds have come down as central banks keep benchmark borrowing rates depressed and investors search further out on the risk spectrum for yield.
Business Management: – Tie a bow on municipal bond swaps. – A muni swap is actually a simultaneous sale and acquisition. This means you sell a bond that’s showing a paper loss and, at the same time, buy a different bond with similar investment characteristics. When the exchange is complete, you’re essentially in the same investment position as before the swap, except now you’re showing a current tax loss. What’s more, the bond acquired in the swap may carry a higher interest rate than the bond that was traded away.
Learn Bonds: – 5 Investment recommendations from PIMCO’s Bill Gross. – For anyone who does not already know, Bill Gross is very active on the @PIMCO twitter account. Last week the subject of his tweets was “5 Ways to Beat the Wealth Tax”. In this post I have included the tweets as well as a more detailed explanation on the thoughts behind them.
Bloomberg: – Need for speed means ETF trading outpaces bonds. – Trading in exchange-traded funds that buy junk bonds is increasing at a faster pace than transactions in the underlying debt as buyers seek a faster way to take advantage of a market returning 15.5 percent this year.
Market Oracle: – US Treasury bond yield operation twist and QE3. – The 10-year note closed yesterday at 1.84, which is only 4 basis points off its interim high of 1.88, which was set the day after QE3 was announced. What will be particularly interesting is how yields (and equities) fare in the last four market days of 2012 if the various Fiscal Cliff issues are not resolved by the end of this week.
Bargain Bin: – Alcatel-Lucent bonds yielding 11%. – The Alcatel-Lucent 2028 bond offers an 11% yield to maturity, which is rare in a world of ultra-low interest rates. This bond offers an alternative to investing in the speculative common shares while still betting on a Lucent turnaround.
FT: – Bond market bubble looking fragile. – Investors should be watching bonds closely. While there was some consolidation on Wednesday, 10-year Treasury yields at about 1.8 per cent are at the top of the range they’ve been in since Mr Draghi spoke. If they break above the range, could the “bond bubble” finally start to deflate?
John Springer: – Emerging Markets bonds merging toward trouble. – Investors these days are forced to do a lot to generate a decent yield and income. In emerging markets debt, I would advise caution. If you must invest in this sector, it seems better to invest in management that has a longer and more stable track record than most.
Cate Long: – The SEC rounds up muniland’s bad guys. – The SEC – the top law enforcer for muniland – has been riding the range. With 17 municipal securities enforcement actions in 2012, the SEC cops have come up with a nice collection of scalps.
BondSquawk: – Relative value opportunity with Community Health Systems High Yield bonds. – Here’s a look at the High Yield bond issued by Community Health Systems. This bond forms part of the BondSquawk High Yield Portfolio released last week, and offers investors an opportunity to capture high income with the potential for price appreciation.
Barron’s: – Prospects of taxes roils muni market. – Municipal bonds, usually the most stolid of markets, have been going through one of their periodic paroxysms. This time it isn’t being caused by the baseless predictions of doom from some clueless Cassandra, but by those who have the actual ability to wreak havoc, our esteemed representatives in Washington.
Reuters: – Corporate bond risk gets silly once again. – Proving yet again that history rhymes rather than repeats, just a few short years after an epochal crash the search for yield just gets wilder and wilder.
ETF Trends: – High-Yield bond ETFs are exploding. – The two largest high-yield bond ETFs alone have pulled in nearly $8 billion of fresh assets this year as investors clamor for income in a low-interest-rate environment.
FT: – Record year for junk bonds. – Overall global debt issuance rose in 2012 buoyed by a record year for junk bonds, but problems in the eurozone, regulatory concerns and economic growth worries curtailed sales in other parts of the bond market.
Financial Iceberg: – The Indianapolis 500 of corporate bonds yields. – Central Banks Zero Rate Policy are pushing investors to the Reach for Yield Mentality without measuring the risks associated to it. Small grab in yield for huge risk involve; is it a definition of a bubble indeed!
Gross: Les Miserables: How many years will we put up with minus 1% real 10-year rates? Please sir can you spare some gruel?
— PIMCO (@PIMCO) December 20, 2012
The tax status of municipal bonds should be part of a larger conversation about how governments share the cost of improving infrastructure.
— Bond Girl (@munilass) December 20, 2012
The Fed owns 32% of all treasury bonds > 2015 and is buying more.
— TF Market Advisors (@TFMkts) December 20, 2012