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Last night, the White House announced that President Obama is to nominate Janet Yellen to become the first female chairwoman of the Federal Reserve. If accepted Yellen will take over from current incumbent Ben Bernanke on Jan 31st next year.
Yellen, currently the vice chairwoman of the Fed, had been widely expected to receive the nomination after former front-runner Larry Summers withdrew as a candidate amid intense political scrutiny.
So what does this mean for bond investors? After yesterdays announcement, Yellen said she would not break with the U.S. central bank’s current easy-money policies aimed at pushing down unemployment, still high at 7.3 percent in August.
That is good news for short-term bondholders according to Bill Gross, who told Bloomberg. That investors should focus on buying “front end” bonds, meaning bonds with a short duration and avoid long term bonds such as 10- and 30-year Treasuries, which are subject to inflation and reflation.
Gross who heads up the worlds largest bond fund, cut the duration of holdings in the $250 billion PIMCO Total Return Fund, to 4.42 years as of Sept. 30 from 5.06 years a month earlier, according to a report on PIMCO’s website. Bonds due in one to five years made up 70 percent of holdings, the Newport Beach, California, company reported.
Bloomberg: – Debt-ceiling alarm freezes market with least supply. – Municipalities are borrowing at the slowest pace in more than two years, showing how the partial federal shutdown and prospect of a U.S. default are dissuading localities from taking on financing for new projects.
Reuters: – 3-U.S. funds investigated over Puerto Rico bond strategy. – U.S. mutual funds that loaded up on Puerto Rico bonds, including OppenheimerFunds, are now the target of an investigation by a state securities regulator, who says investors may not have been aware of their exposure to the island’s fiscal crisis.
Investment News: – Galvin begins examination of Puerto Rican muni debt obligations. – Massachusetts securities regulators have begun to make inquiries about the sale of Puerto Rican municipal debt obligations to investors in the state, with the office of Secretary of the Commonwealth William Galvin on Wednesday announcing it had sent inquiry letter to Fidelity’s FMR Co. Inc.; OppenheimerFunds, a unit of Massachusetts Mutual Life Insurance Co.; and UBS Financial Services Inc.
Municipal Finance Today: – Meredith Whitney winds down brokerage unit after setting up fund. – Meredith Whitney, who built her own Wall Street advisory firm after winning renown for a 2007 call on Citigroup Inc., deregistered her brokerage unit after three unprofitable years and is setting up an investment fund, according to industry records.
Bloomberg: – Debt-Ceiling alarm freezes market with least supply. – Municipalities are borrowing at the slowest pace in more than two years, showing how the partial federal shutdown and prospect of a U.S. default are dissuading localities from taking on financing for new projects.
Bloomberg: – Detroit’s ex-mayor sentenced to 28 years for corruption. – Ex-Detroit Mayor Kwame Kilpatrick was sentenced to 28 years in prison for public corruption as U.S. prosecutors sought to link his conduct to the city’s bankruptcy, which came almost five years after he left office.
Learn Bonds: – How to use bond market liquidity and confidence measures. – John Mason shows how to use bond market liquidity and confidence measures to figure out what’s going on in the bond market.
The Atlantic: – I don’t know what will happen if we default, and I don’t want to find out. – The CEO of Pimco, the world’s largest bond investor, explains why breaking through the debt ceiling could create “a huge global mess.”
Learn Bonds: – A reality check regarding debt default, T-Bills, and the mainstream media. – Is the recent spike in Treasury bill rates anything to worry about? Financial Lexicon thinks it is.
USA Today: – Fidelity sheds government bonds coming due. – Fidelity Investments, the nation’s largest money market mutual fund manager, has sold all of its short-term U.S. government debt — the latest sign that investors are increasingly nervous about the possibility of a government default.
DealBook: Government standoff shakes trust in U.S. debt. – In good times and bad, the world’s financial system has long been able to rely on one thing: that the United States government would pay back its debt on time.
WSJ: – Longer-dated Treasurys decline. – Prices of longer-dated Treasury bonds pulled back as demand eased on the safe-harbor market while fresh debt supply looms.
Reuters: – Forward Calendar – U.S. corporate bond new issues. – A list of upcoming high-grade and high-yield corporate bond offerings in the United States. The information was gathered from Thomson Reuters U.S. new issues team, and other market sources.
Scott Minerd: – Tipping the scale toward high yield bonds. – Now that the risk of a near-term increase in interest rates has faded, we expect to see more stability in high-yield flows and more volatility in bank loans as mutual fund investors reposition to search for yield rather than protecting themselves from rising rates.
Motley Fool: – High-yield bond ETFs deliver value for investors. – The mere whiff of a change in Federal Reserve policy caused overselling in the bond markets recently, which naturally carried through to the bond ETFs. Unit values dipped with the breeze, regardless of the fact that large sections of the debts, notably corporate debts, weren’t affected at all by the issues.
FundWeb: – Fidelity’s Ellis favours EM local debt. – Fidelity Worldwide Investment bond manager Steve Ellis struggles to find value in emerging market hard currency debt and looks alternatively to local debt as a way of adding alpha to the Fidelity Emerging Market Debt fund.
Artemis: – Bill proposing state catastrophe bonds, languishes in Congress. – A U.S. house bill proposing the pooling of risks from state natural catastrophe re/insurance providers in order to facilitate better reinsurance and risk transfer, including through instruments such as catastrophe bonds, is languishing in a Congress committee.
ETF Trends: – Here’s how the Bill Gross ETF shapes up. – PIMCO’s Bill Gross has doubled the weight of non-U.S. developed market bonds in the firm’s $250 billion Total Return Fund, the world’s largest mutual fund.
ETF Trends: – The tactical case for bond ladder ETFs. – Bond Ladder ETFs are providing a unique solution for managing duration risk. These ETFs, now available for the municipal, corporate and high yield sectors, enable more precise control over duration risk than previous fixed income ETF offerings. Moreover, they have performance benefits relative to traditional fixed income index funds and ETFs if the rising rate and steep slope yield curve environment persists.
ETF Trends: – State street introduces short term bond ETF. – State Street Global Advisors unit, the second-largest U.S. ETF issuer, will introduce the SPDR SSgA Ultra Short Term Bond ETF (NYSEArca:ULST) today. Although U.S. Treasury yields have retreated a bit since the Federal Reserve said it will not taper its quantitative easing program, investors are still evaluating short duration bond funds as conservative, income-generating tools.
Fox Business: – Are ultra short-term bond funds safe? – As they anticipate the Federal Reserve’s eventual tapering of quantitative easing, investors worried about rising interest rates are wondering if they should hedge their bets on fixed income by putting money in ultra short-term bond funds.
GROSS: 6 weeks reprieve from the gallows. Washington sure knows how to put on a show. Buy 5yr Treasuries and Corps.
— PIMCO (@PIMCO) October 10, 2013
Puerto Rico's $70 billion in debt is ~ 1.89% of $3.7 trillion #MuniLand market.
— Cate Long (@cate_long) October 10, 2013
Tbill hump disappearing fast.
— Ed Bradford (@Fullcarry) October 10, 2013