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Treasury Inflation Protected Securities, better known as TIPS had a pretty dismal year in 2013, posting a loss of 8.5%, according to Barclays. The bonds, which allow investors to hedge against inflation, are on pace to log their biggest calendar-year loss since the U.S. government started selling them in 1997.
Investors have abandoned the TIPS market at a record pace this year, after buying up the debt in the previous four years. TIPS funds overall have suffered a net outflow every month in 2013 and total redemptions have reached $32.7 billion through Dec. 18, according to fund tracker Lipper.
But Pacific Investment Management Co. better known as PIMCO, is betting that TIPS will rally in 2014 after this year’s sharp selloff. Mihir Worah, head of Pimco’s inflation bond portfolio, said in an interview with the WSJ on Friday that he expects TIPS to post a total return of 4%-5% next year.
Mr. Worah said he has sold some holdings to meet redemptions, but he has been a “net buyer” of TIPS. He said he believes inflation will climb in 2014 as the economy continues to improve. He predicts U.S. consumer prices will rise close to 2% from 1.2% in November.
“I still like TIPS and they are attractively priced,” Mr. Worah said.
Cleveland.com: – Bedford Law Director Ken Schuman and Municipal Court Judge Harry J. Jacob III indicted. – A grand jury today indicted Bedford Law Director Ken Schuman and Municipal Court Judge Harry J. Jacob III as part of a 19-count indictment that alleges that the public officials accepted bribes and solicited prostitutes, among other crimes.
George Spritzer: – Year-end opportunity in busted muni CEF IPOs? – The time may have come for one of the best trading opportunities of the year- the January effect, where you buy stocks in the last few weeks of the year that are artificially depressed by investors selling them for tax reasons. These stocks often experience a nice bounce in January when the selling pressure eases up.
Janney: – A unique local government refunding strategy. – Highly Rated Illinois School Districts are Funding Escrows with State of Illinois General Obligation Bonds.
Rick Ashbum: – The demise of California muni bonds has been greatly exaggerated. – This past August, a research team from the New York Fed released a report that correctly notes that municipal bond default rates are far higher than normally reported. Moody’s counts 71 defaults in the past 40 years; the Fed report counts 2,521 defaults! At first blush, that seems like muni bonds are a lot riskier than we thought.
LearnBonds: – Intermediate-Term Bonds. – Any good investment in bonds always has trade-offs. Traditionally, one area of risk is the actual movement in the price of the bond. The higher the bond price goes, the less of a yield it provided. The lower a bond price goes, the higher the yield. The other form of risk is maturity length. The longer a bond has until maturity, the more risk it incurs. This is because any number of events can occur during the longer maturation period that could significantly affect the bond’s value.
BusinessWeek: – Treasury curve flattens as traders unwind wrong-way taper wagers. – The yield gap between Treasury five-and 30-year securities narrowed for a third day as traders unwound wrong-way bets that the Federal Reserve would wait to announce a reduction of debt purchases until after the new year.
Zacks: – Do the bonds carry a fear factor? – The bulk of this year’s Santa Claus rally may have been what we saw Wednesday afternoon after the Fed came out with its measured Taper announcement. We may get some modest gains on top of that short burst of positive activity in the remaining few, mostly low-volume, trading sessions, but likely not much more.
WSJ: – Treasury bond yields fall after hitting three-month peak. – Treasury bonds rebounded from an earlier price decline as buyers stepped in after the benchmark 10-year note’s yield hit a fresh three-month high.
Reuters: – Europe to challenge U.S. market for mandates in 2014. – Europe could overtake the US as the preferred market for longer-dated corporate bond issuance in 2014, something that hasn’t occurred since well before the financial crisis.
FT: – High-yield bonds benefit from market rotation. – Anyone looking at the stunning rise in U.S. equities and losses in bonds this year would conclude that a ‘great rotation’ between the asset classes has defined 2013.
Before its News: – Junk bond ETF lagging S&P 500 by 15% since May…Next move is? – When it comes to “what have you done for me lately” Junk bond ETF JNK doesn’t have much to brag about! Since early May, JNK is lagging SPY by almost 15%. I look at the S&P 500 as the general and junk bonds as the troops and you want the “troops to follow the general!” From a pattern perspective, it would appear very important that JNK NOT break support line (2) or further selling and weakness could creep into this lagging asset!
Forbes: – High yield bond fund outflow swells to $876M; YTD inflow $1.8B. – Retail cash outflows from high-yield funds swelled to $876 million in the week ended Dec. 18, according to Lipper, a division of Thomson Reuters . The influence of exchange-traded funds was just 22%, or $195 million. Last week, a $92 million ETF outflow essentially wiped out an inflow of $108 million to mutual funds.
Financial Post: – Fed tapering less rosy for emerging markets. – Two days of trading hardly says much about the longer-term implications of the U.S Federal Reserve’s decision to reduce its bond-buying program, but equity markets are taking it well in stride so far — at least in the developed world.
WSJ: – Advisers hold emerging-markets bonds for long haul. – Emerging-markets bond funds have suffered outflows of late, but some financial advisers say they’re as enthusiastic as ever over the bonds’ long-term prospects. “With interest rates going up, the domestic bond market is going to suffer,” says Avani Ramnani, director of financial planning and investment management at Francis Financial in New York. “Yields are going to increase.
Emerging Markets Daily: – Retail capital flowed out of EM equity, bond funds; Asia may be attracting capital again. – For the week ending December 18 (before the Fed taper), capital continued to flow out of EM-dedicated equity and bond funds. A total $3.1 billion, or 0.4% of the asset under management, left equity funds. In particular, Latin America and EEMEA funds saw $0.5 billion and $0.5 billion, or 1.2% and 1.3% AUM, leaving.
Morningstar: – Stop scrounging for income and sell some stocks. – You’re retired, and you have two choices to generate the money you need for living expenses. The first entails taking more risk, and the second actually reduces risk in your portfolio.
Focus on Funds: – Bond-fund outflows surged to 24-week high ahead of ‘taper’. – Judging by money flows, bond-fund investors weren’t taking chances ahead of the Federal Reserve’s decision to dial back monthly asset purchases. Redemptions from bond funds tracked by data firm EPFR surged to a 24-week high in the week that included the Dec. 18 news that the Fed will “taper” $10 billion in monthly asset purchases.
Market Realist: – Must Know: Measuring correlation drift in ETFs (Part 3). – Professional managers often observe that during times of market stress (such as in 2008), correlations between asset classes tend to converge. Most asset allocation models are based on certain correlation assumptions between asset classes and securities. We coined the term ‘ETF Correlation Drift’ as a simple way to track if correlations between ETFs have changed recently relative to longer-term trends.
ETF Database: – What did 2013 mean for fixed income markets? – It’s scorecard time again – time to see how 2013 market predictions panned out. Matt Tucker takes a look back to see how his projections – and the bond market in general – fared this year.
Reuters: – Rise of shareholder activism gives bond investors headaches. – When shareholder activist Carl Icahn turned up the heat on Apple in October, demanding a massive $150 billion share buyback, bond investor Bill Gross wasn’t having any of it.
Kiplinger: – The Five best bond funds for 2014. – Bond prices rose and yields fell almost without interruption for 30 years before 2013. With the benchmark ten-year Treasury bond paying just 2.9%, yields are still low by historical standards. Since 1962, the ten-year Treasury has yielded 6.3%, on average. So even a small improvement in the global economy should push yields higher in 2014, especially once the Federal Reserve starts paring back its aggressive bond-buying program in January.
Digital Journal: – Henderson launches unconstrained bond fund. – Henderson Global Investors has launched the Henderson Unconstrained Bond Fund, a mutual fund that provides investors with a dynamic approach to fixed income investing. After successfully managing portfolios utilizing this investment style in the United Kingdom and Europe since 2006, Henderson’s experienced team is proud offer this investment capability to its US client base.
Telegram.com: – How Fed’s pullback of stimulus could affect you. – Consumers will likely pay more for home loans. Savers may earn a few more dollars on CDs and Treasury bonds. Banks could profit. Investors may get squeezed.
— PIMCO (@PIMCO) December 20, 2013
Kiesel: Under the Xmas tree, we seek companies with 2x GDP growth & companies raising prices where Demand > Supply to outperform next year.
— PIMCO (@PIMCO) December 20, 2013
1o year has slipped to 2.75% POST Taper. Perhaps anticipation/front running was ahead of a much more aggressive taper . . . ?
— Barry Ritholtz (@ritholtz) December 20, 2013