PIMCO Predicts Bottom in Treasury Yields….Where to Next?…HP Bonds…and more!August 24th, 2012 by Simon G
Best of the Bond Market for August 24th, 2012
Even with QE3, Treasury yields have practical limits.1.50% 10 year is a good common sense bottom.
— PIMCO (@PIMCO) August 24, 2012
BondSquawk: – Where next for treasury yields? – With 10 year treasuries breaking through key resistance levels, where next? Credit Suisse technical analysts highlight the importance of the 1.63/1.62% level which if pierced could lead to an extension lower in yields.
Seeking Alpha: – Is now a good time to invest in the debt of Hewlett Packard? The recent poor performance from HP has led many analysts to write the company off. But when we compared their 5yr corporate bond against key rivals Dell, something surprising showed up.
WSJ: – Bernanke Defends Fed Actions – Ben Bernanke has written to U.S. Rep. Darrell Issa (R., Calif.), chairman of the House oversight committee, to defended actions the Fed has taken to support the economy. He said the Fed’s “Operation Twist” program—buying long-term Treasury bonds and selling short-term securities—is still “working its way through the economic system,”.
Learn Bonds: – SEC cancels the death of money markets – for now – SEC cancels proposed rule changes for money market mutual funds, Luis Aguilar, one of the SEC’s five commissioners and seen as the swing vote, said “there remained too many unknowns in the broader cash-management industry to feel confident new rules would not spook investors away from money funds, which play a central role in financial markets”.
Timely Portfolio: – A look at the extraordinary returns bonds have shown over the last 30 years. – The US Bond Market’s Sharpe Ratio (reward-to-variability ratio) has trounced Warren Buffett’s for the last 30 years. In addition, bonds have exhibited a low/negative correlation with stocks during bear markets.
Reuters: – U.S. cities afraid to take risk to reduce pension deficit – Many American states and cities have massively under-funded public pension funds – but they’re avoiding piling on risk by shunning bonds that could finance such shortfalls.
MarketWatch: – Has new quantitative easing by the Fed already been priced into the markets? Treasury bonds are unlikely to have a big drop in yields over the longer-term even if the Federal Reserve starts a new bond-buying program according to analysts at RBS Securities.
Calafia Beach Pundit: If we do get QE3 expect yields to rise, not fall - Conditions today are quite different from what they were leading into QE1 and QE2. The economy is weak, as before, but this time the threat of deflation is quite remote.
Reuters: – More talks for creditors in Stockton City’s bankruptcy case – The city of Stockton, California and its creditors were steered into new talks with a mediator who settled a key dispute in another municipal bankruptcy case. Stockton, a city of nearly 300,000, filed for Chapter 9 bankruptcy in late June, the most populous U.S. city to seek protection from its creditors so far.
Reuters: – Scranton begs hedge funds for money to bolster city finances – Scranton, Pennsylvania, is reportedly, having to beg hedge funds for finance to pay for a recently missed municipal bond payment. Such a move is unprecedented in the municipal bond market and is hardly likely to fill investors with confidence.
Calafia Beach Pundit: TIPS market says we are heading towards a very weak economy with somewhat higher inflation. – If you agree with the market, then you stay in cash on the sidelines, and/or you buy TIPS and Treasuries in case things turn out to be even worse. If you think there is a chance that things could improve even just a little bit, then you avoid cash, Treasuries, and TIPS, and you invest in just about anything else: stocks, corporate bonds, and real estate.
Janney Montgomery: Muni/Treasury ratios rose over the last week, as tax-exempts couldn’t keep up with hard-charging Treasuries
— Cate Long (@cate_long) August 24, 2012
In a rising-tax environment, “people will realize they can shelter money in muni bonds,” one expert tells
— Rochester Funds (@RochesterFunds) August 24, 2012
of $1.55bn expected next week in
#muniland $1.27bn negotiated (vs this week’s $4.93bn) and $278mm competitive (vs this week’s $1.38bn)
— Taylor Riggs (@TaylorRiggs_BB) August 24, 2012