To get the Best of the Bond Market delivered to your email daily click here.
The tax breaks some investors receive investing in the $3.7 trillion municipal bond market are under threat under changes proposed by the top House tax writer, a shift that may diminish the appeal of buying local-government debt.
The plan released today by House Ways and Means Committee Chairman Dave Camp, would tax some municipal-bond income for the highest earners as part of broader changes that would lower rates. It would also eliminate the exemption for debt sold by localities to finance private projects.
The change to the tax treatment of municipal bonds could reduce the value of the securities, which sell for higher prices than other bonds because investors aren’t taxed on the income.
Any change to the way municipal bonds are treated with regards to tax purposes means that state and local governments would have to offer a higher yield to make up for that tax, pushing up borrowing costs for states and cities.
The proposal comes after a terrible year for munis, caused by the threat of rising rates, Detroits bankruptcy and the ongoing problems in Puerto Rico. “The muni market doesn’t need this kind of uncertainty,” Citigroup analyst Vikram Rai, said. “It seems like a fairly distant threat as of now, but if it does become more imminent, we will see a negative impact on the market.”
Digital Journal: – League of Cities’ reaction to camp tax reform. – The National League of Cities opposes aspects of Congressman Camp’s proposal. While the proposal is an honest attempt at solving the problems of our nation’s tax code, it will have unintended consequences in many areas of cities’ operations and will reduce the ability of cities to create jobs and expand the economy.
MarketWatch: – A tax-friendly alternative to municipal bonds. – There is an often overlooked alternative for investors that could prove pivotal in helping retirees maintain their desired income on a tax-free basis.
Morningstar: – Do municipal bonds have a place in my portfolio? – Consider the tax implications of municipal bonds before adding them to your portfolio.
Reuters: – Puerto Rico bonds do the unexpected: Rally. – The $3.7 trillion U.S. municipal bond market has been stunned by what would have been unthinkable a few months ago: Puerto Rico debt is rallying.
ETF.com: – Top-performing muni bond ETFs. – Municipal bond ETFs are gaining ground this year after taking a beating in 2013 in the wake of the Federal Reserve’s first suggestion of tapering last spring. Interestingly, the asset class’s strong performance seems linked to growing investor confidence that rates are likely to rise slowly, and has come despite credit woes in Puerto Rico—the ninth-largest municipal bond issuer.
LearnBonds: – The Fed and recent bond price movements. – One of the fears that investors in bonds had last fall was that any effort to begin tapering Federal Reserve purchases would result in higher bond rates. Let’s look at what has happened over the roughly two months since the tapering of purchases began.
BusinessWeek: – Treasury yields touch three-week low on economy, Ukraine concern. – Treasury 10-year note yields touched the lowest level in almost three weeks as investors weighed prospects for the U.S. economy and political turmoil in Ukraine boosted demand for safety.
Bloomberg: – Treasury floaters demand eases as dealers win larger sale share. – The Treasury’s $13 billion floating-rate note sale, the second ever for the security, drew lower demand than last month’s offering, with primary dealers purchasing a greater percentage of the securities.
WSJ: – Treasurys hold gains after strong 7-year auction. – Solid demand at a U.S. government debt auction Thursday, powered by the ongoing political uncertainty in Ukraine and bond-fund managers’ month-end purchases, helped the Treasury market hold earlier gains.
Donald van Deventer: – Goldman Sachs Group Inc. leads best value long maturity bond trades. – We find the best-value non-call senior fixed rate 20 year or longer maturity bond trades on February 25, 2014 were issued by the following issuers.
Bloomberg: – Goldman’s Gmelich likens junk loans to one-way freight train. – Investors who have been pouring money into funds that purchase leveraged loans need to be wary of a reversal in demand, according to Justin Gmelich, the head of credit trading at Goldman Sachs Group Inc.
Forbes: – High Yield ETFs: It’s more than fees that matter. – High yield ETFs have repeatedly underperformed actively managed mutual funds. As of January 31, 2014, the average five year annualized return of the Morningstar US actively managed funds ETF High Yield universe was 13.99%. By comparison, the Morningstar High Yield mutual fund universe of actively managed funds returned an average of 15.18%.
NASDAQ: – Noteworthy ETF outflows: HYG. – Looking today at week-over-week shares outstanding changes among the universe of ETFs covered at ETF Channel , one standout is the iShares iBoxx $ High Yield Corporate Bond ETF (Symbol: HYG) where we have detected an approximate $75.6 million dollar outflow
Institutional Investor: – Emerging economies could see calmer days ahead. – As the so-called fragile five economies recover from a January rout, money managers like the prospects for emerging markets stocks and bonds.
The Current: – Possible cat fund purchase of private reinsurance sparks backlash. – Officials with the Florida Hurricane Catastrophe Fund, the state reinsurance fund, are considering a proposal to buy up to $1.5 billion of reinsurance on the private market, with the likely effect of small rate increases for homeowners.
Artemis: – Traditional reinsurers challenged to compete on cost-of-capital. – Traditional reinsurance companies are being challenged to compete with insurance-linked securities (ILS), catastrophe bonds and collateralized reinsurance products which have a lower cost-of-capital than them, according to GC Securities.
The Globe and Mail: – Bond market faces a tougher 2014. – Record levels of corporate borrowing boosted the fixed-income markets to unforeseen highs in 2013, but the party’s not likely to last another year.
TheStreet: – How to balance yield and risk in your income portfolio. – The overwhelming consensus view heading into 2014 was that interest rates were finally heading higher, giving income investors the opportunity to earn more yield from bonds.
Bloomberg: – ETF Appetite for fixed income diminishes on reduced money flows. – Exchange-traded funds that buy bonds in the U.S. are losing out to equity ETFs as investors move toward riskier assets, signaling confidence in the strength of the economy.
FE Trustnet: – Are you buying top-performing bond funds for the wrong reasons? – Bond funds that have been prepared to take on more risk have prospered from a relative point of view recently, but they could be set for tough times ahead in a risk-off environment.
Stock Traders Daily: – TBT: Bonds suggest economic risk. – The bond market has been telling us something much different than the stock market since this most recent market bounce has taken shape.
SF Gate: – European stocks are getting pummeled and bonds are rallying worldwide. – Stocks are falling and bonds are rallying this morning as geopolitical and fundamental economic concerns weigh on global sentiment.
Wall St Cheat Sheet: – 2 Bond funds investors should consider. – Generally, I am not interested in bonds in this market environment. Interest rates are simply too low to justify the risk of holding them. Nevertheless, I think there are exceptions to this rule, and while I wouldn’t devote a large portion of my portfolio to bonds, there is a place in any portfolio for bonds that generate a high, steady rate of return.
InvestmentNews: – New fund takes an unconstrained approach to returns. – Neuberger Berman Group has introduced a new fixed-income mutual fund that promises to explore every nook of the bond market in pursuit of positive absolute returns.
Focus on Funds: – Your new bond dealer may be an ETF. – A new survey from Greenwich Associates underscores the point: Old-fashioned dealers are stepping back from the bond market, while fast-moving exchange-traded funds are taking on new roles. Will this trend end as well as it is beginning?
— PIMCO (@PIMCO) February 27, 2014
Week’s Treasury auctions conclude with good demand for 7ur notes. Good demand across all the auctions this wk.
— AnthonyValeri (@Anthony_Valeri) February 27, 2014
Kiesel DepCIO: Watch wages & inflation not unemployment 4 Fed policy. With low wage growth & benign inflation Fed shud b slow to raise rates
— PIMCO (@PIMCO) February 27, 2014
“Bond Squad is my favorite bond investing newsletter. It combines common sense with deep market knowledge.”
- Marc Prosser, Publisher of Learn Bonds
Bond Squad is more than just an investment newsletter! Paying subscribers can call-up bond market veteran trader and portfolio manager, Tom Byrne, for market advice and have him review their portfolio free of charge.
Get a free two-week, no commitment trial of Bond Squad by emailing Tom at firstname.lastname@example.org
Or learn more about Bond Squad’s clearly written, expert analysis, click here