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Bill Gross waded into the emerging market storm this morning when he told Bloomberg that he is avoiding investing in China.
Gross, who manages the world’s largest bond fund at PIMCO. Said the pace of Chinese economic growth is among the biggest questions in developing nations and greatest risks for financial markets right now.
“I call China the mystery meat of emerging-market countries,” Gross said during an interview on Bloomberg Television’s Market Makers. “Nobody knows what’s there and there’s a little bit of bologna, so we’re just going to have to wonder going forward through this year as to the potential problems in China and other emerging markets.”
Emerging markets have been in turmoil this year after weakening data points to a slowing recovery in both U.S. and Chinese markets. This comes at a critical time, since the Federal Reserve has been reducing bond purchases, causing emerging-market currencies to slump.
How is PIMCO playing this new turn of events? According to Gross, they’ve been buying U.S. Treasuries maturing in four-to five-years, sticking with the strategy outlined last year amid expectations the Fed will keep short-term rates through the year even as it reduces asset purchases.
Forbes: – UBS drops first shoe on Puerto Rico bond investors. – UBS Puerto Rico bond investors better look out; the giant investment bank’s research analysts just dropped the first shoe on your heads. Last week, UBS issued a report stating that at least one of the Big 3 rating agencies, Moody’s, Fitch or Standard & Poor’s, will cut a swath of Puerto Rico’s debt to “junk” in the next month, according to Michelle Kaske of Bloomberg. The UBS report predicts that the other two agencies will soon follow.
SacBee: – Fixed income investors could benefit from muni bonds in rising rate environment, standish says. – Investments such as municipal bonds that have a yield advantage over Treasuries are likely to be among the fixed income segments that could provide outperformance in 2014 as U.S. Treasury yields start to move higher, according to the municipal bond outlook for 2014 from Standish Mellon Asset Management Company LLC, the Boston-based fixed income specialist for BNY Mellon.
Philly.com: – Time may be ripe soon to buy Puerto Rico bonds. – Wall Street is starting to treat Puerto Rico’s municipal bonds as if they have already been downgraded to “junk” status. But what does that mean for our portfolios?
BondBuyer: – Puerto Rico budget plan may not be enough. – Puerto Rico’s plan to adopt a balanced budget may not be enough to sway the rating agencies from considering downgrading the commonwealth.
Income Investing: – Timing the muni market: Check back in April. – Trying to time your entry into and/or exit from any market is always a tricky proposition. That said, certain markets have some predictable tendencies, and the municipal bond market is one of them.
Bloomberg: – Long bonds gain in best month since ’12 with yields. – The longest-maturity municipal bonds have gone from market laggards to the best-performing area of local-government debt, a boon to issuers locking in borrowing costs for decades.
4Traders: – Treasury bonds attract buyers as data raise growth worries. – Investors flocked into U.S. Treasury bonds Monday as a pullback in key gauges of manufacturing in the world’s two largest economies raised concerns over the global growth outlook.
WSJ: – WisdomTree launches floating rate Treasury ETF. – WisdomTree, an exchange-traded fund (“ETF”) sponsor and asset manager, today announced the launch of the WisdomTree Bloomberg Floating Rate Treasury Fund (USFR) on the NYSE Arca. USFR seeks to provide exposure to floating rate notes issued by the United States Treasury. The Fund has a net expense ratio of 0.15%.
ETF Trends: – Treasury ETFs: A contrarian play for 2014. – Treasury exchange traded funds are making a comeback as benchmark yields experience the largest monthly drop since August 2011.
BusinessWeek: – Corporate default rate in U.S. lowest since March 2008. – The trailing 12-month U.S. speculative-grade corporate default rate fell to 1.7 percent last month, the lowest since March 2008, according to Standard & Poor’s.
aiCIO: – When bonds are worth the risk. – Investors who took a punt on relatively risky fixed income over last five years would have notched up the best possible risk-adjusted returns for their portfolios, research has shown.
IFR Asia: – Issuers storm U.S. high-yield market with quick-print deals. – The US high-yield market roared back to life on Tuesday, with four new quick print deals from Netflix, AMC Entertainment, Regency Centers and Lennar Corp set to price and a jumbo deal for Chrysler pulled forward a day on the back of strong demand.
LearnBonds: – Emerging markets: Separating the opportunity from the danger. – When considering investing in emerging markets, we would prefer economies which are not running large current account deficits, are known for upholding rule of law and are well managed. But which economies are these? Read this to find out.
BusinessWeek: – UBS CEO says emerging-markets sell-off overdone as investors exit. – The selloff in emerging-market assets that sent the benchmark equity index to the lowest valuation since the 2008 financial crisis may have gone too far, according to UBS AG Chief Executive Officer Sergio Ermotti.
FT: – Sovereign debt a better bet than equities, say fund managers. – In the view of many fund managers, better bargains are to be had in sovereign bonds than in equities, partly because debt markets tend to be dominated by institutions, which so far are displaying a more enduring faith than retail investors in the emerging markets theme.
Forbes: – How to invest in U.S. bonds. – U.S. bond investing has a reputation for being arcane, and understandably so. Where things get confusing for many investors is bond risk. While a U.S. bond is extremely likely to be repaid with the agreed interest, there is what’s known as “price risk,” that is, that the value of the bond itself could decline.
BusinessRecord: – High-yield short-term bonds. – To improve the survivability of your speculative bond portfolio, I suggest that you invest only in bonds that will come due in less than four years. Keeping short maturity dates is how many high-yield junk bond mutual funds have been able to post double-digit returns in the past couple of years.
Morningstar: – 3 Bond investment tips. – Fixed income fund manager Fraser Lundie of Hermes explains how he mitigates interest rate risk in his portfolio and why he prioritises quality and long duration bonds.
Bruce Vanderveen: – 3 Bond ETFs to beat deflation. – Deflation, it’s like the unkillable horror-movie monster. Time and again, just when you think it’s finally dead, it rears its ugly head to once again threaten global economies.
Reuters: – PIMCO Total Return fund starts year behind more than half its peers. – The Pimco Total Return Fund, the world’s largest bond fund, trailed more than half of its peers in January despite returning to gains after a rough 2013, preliminary Morningstar data showed on Monday.
WSJ: – Target-date funds dodge a bond bullet. – For a broad class of target-date funds, 2013 turned out to be a year of redemption. The good kind of redemption. Not the kind where fund investors pull their money out.
InteractiveInvestor: – Bonds rumble but fail to tumble. – It has not been an exciting year for fixed-interest investors, and in some cases it has been a disappointing one. Nevertheless, the bond-watcher’s Armageddon scenario in which economic activity takes off, interest rates soar and bond prices collapse has failed to arrive.
MarketWatch: – Gundlach, Gross fund outflows highlight embattled bond market. – A number of factors lined up in the bond market’s favor in January, pushing benchmark Treasury prices higher and monthly returns solidly into the green. But flows into two of the most watched bond funds didn’t reflect the enthusiasm, showing that money is still leaving fixed-income for greener pastures.
BREAKING: Puerto Rico Credit Rating Cut to Junk (BB+) by S&P, Remains on CreditWatch with Negative Implications
— Brian Chappatta (@BChappatta) February 4, 2014
CASHIN: Signs of a reflex rebound appear to be lined up. Stocks up as are bond yields. Yen eases a bit. No signs of panicky short covering.
— Barry Ritholtz (@ritholtz) February 4, 2014
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