High Yield Defaults Surge….Stockton CA Wusses Out…More Trouble in Puerto Rico…and more!

September 6th, 2012 by

Best of the Bond Market for September 6th, 2012

Bond Squawk: – High yield defaults surge after quiet summer. – Default activity in August was high according to research provided by J.P. Morgan. In their latest, “Global High Yield and Leveraged Loan Research – Default Monitor report”, August was an active month as four High Yield companies defaults totaling $2.14 billion.

Cate Long: Why Stockton should challenge CALPERS in bankruptcy – In a bankruptcy everyone must give up something. Exempting pension benefits may buy short-term peace from labor unions but will starve the city long term of the resources it needs to pay current police and firemen. CalPERS needs to be challenged in court. It’s the only path to fiscally stable California communities.

Reuters: S&P revises credit outlook to negative for Puerto Rico Municipal Finance Agency - S&P, which reaffirmed its BBB-minus rating on the debt, said the local-government and commonwealth revenue pledged to pay off the bonds may prove vulnerable to shifts in the Caribbean island’s economy, according to a news release.

CNBC: Another money manager who thinks  US Government bond yields are a disaster waiting to happen. – U.S. government bond yields are a “mispriced asset class” and represent a bubble to avoid, according to Leon Cooperman of Omega Advisors.

Investor Place: 3 Bond ETFs you don’t know about but should – HYS, BKLN, and ZROZ

Bloomberg: California Treasurer seeks to ban Capital Appreciation Bonds. – Treasurer Bill Lockyer will push for limits on bonds that have saddled school districts with debt payments as much as 10 times the principal and seek to ban those maturing more than 25 years in the future, a spokesman said.

Learn Bonds: – Bill Gross is wrong about CD rates  – From a factual perspective, CD rates are well above the 0.1% rate quoted in Gross’s commentary.  High yielding CDs currently offer yields between 1.1% (one year) to 1.75% (5 years).

Biz Journal:Understanding complexities in the municipal bond market. – The municipal bond marketplace is diverse, with over $3.7 trillion in outstanding bonds and more than 60,000 state and local governments, districts and authorities active in the municipal market. How has the municipal market changed and how will financial stresses affect how municipalities view their outstanding obligations?

NY Times: ECB sets bond plan meant to ease euro debt peril. – European Central Bank president Mario Draghi said on Thursday they he had agreed on a framework for buying the bonds of troubled euro-zone countries on the open market in unlimited quantities, but left the timing unclear.

Reuters:Is spiking the biggest problem for public pensions? – The crisis that public pensions face over funding shortfalls is becoming increasingly important in the media. Add to that some concerns about the generous benefits that some public retirees receive. As state after state struggles with new controls on benefits and takes steps to address plan shortfalls, the issues become mired in more and more complexity.

Charles Margolis: Missouri Pacific 90-Year Bonds Yield 5.9% – In January 1955 Missouri Pacific Railroad issued Corp. bonds due in 2045. Missouri Pacific was purchased by Union Pacific Corp. (UNP) in 1980. However outstanding Missouri Pacific debt prolonged the merger until 1997.

ICI: – U.S. municipal bond funds had est. inflows of $993m for week ended 8/29. Total estimated inflows to long-term mutual funds were $2.99 billion for the week ended Wednesday, August 29, the Investment Company Institute reported today. Flow estimates are derived from data collected covering more than 95 percent of industry assets and are adjusted to represent industry totals.

Columbia Management:How might Obama’s healthcare reforms impact the muni market? – In March 2010, Congress passed the Affordable Care Act (ACA), with the goal of implementing comprehensive health insurance reforms. But how will these changes affect the not-for-profit healthcare universe?

Bond Squawk:Earnings disappointments leave corporate bonds vulnerable. – Investment Grade corporate bonds have been on a tremendous run as evident by the decline in yields which has led to outperformance relative to Treasuries. However, the recent trend of companies catering to shareholders first may ultimately hurt bondholders. Specifically, dividends which reduces cash on hand to service debt holders have been increasing.

Bloomberg:Charter schools increase new bonds at fastest pace since 2007. – U.S. charter schools are issuing municipal debt at the fastest pace since 2007 as enrollment grows, national networks expand and the lowest yields in a generation spur construction and refinancing.

iShares:Bonds are not just for old people. – It’s a common misconception: Bonds are for older investors, stocks are for younger investors. While I agree that an investor’s mix of stocks and bonds should change as they grow older, the reality is that fixed income can play an important role in any portfolio, regardless of the investor’s age.

Bloomberg: San Bernardino, will close libraries, dismiss school crossing guards and buy fewer bullets while under court protection. – The reductions are part of a plan to reduce the budget deficit by two-thirds, to $16.4 million from $45.8 million, approved by the City Council yesterday. The council backed away from some cuts in the Fire Department, meaning that the city may not realize all of the savings outlined in the proposal until those cuts or alternatives are adopted.

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