Rating Agencies Get no Respect….PIMCO Carnage…2013 10 Year Treasury Predictions…and More!December 17th, 2012 by Simon G
Barry Ritholtz: – Ratings agencies ongoing obsolescence. – One of the unrepentant and unprosecuted villains of the credit crisis were the major ratings agencies, especially Moody’s and S&P. They slapped triple AAA ratings on securitized products that were junk. They did so not due to an error or omission or miscalculation, but rather, because they were paid to do so by the underwriters of those products. So it’s encouraging to see credit buyers doing their own research and ignoring the failed ratings agencies.
Bloomberg: – Moody’s gets no respect as bonds shun 56% of country ratings. – The global bond market disagreed with Moody’s Investors Service and Standard & Poor’s more often than not this year when the companies told investors that governments were becoming safer or more risky.
Brendan O’Boyle: – The carnage In PIMCO’s high income fund continues. – The sell-off of PIMCO’s high income fund (PHK) continues. On Friday, the market price of the fund closed at $10.82, a 28.8% premium to the current NAV of $8.40. Just a few months ago that premium was over 70%. But this could mean an opportunity for investors. If the premium to net asset value reverts to the mean it will result in excellent capital gains and distribution income, provided that an appropriate entry point is selected.
Barron’s: – Big banks see 2.25% 10-yr treasury yield in a year. – Barron’s have been cautioning investors that bond yields may begin a long-anticipated rise next year, which could undercut prices of existing bonds and produce losses in bond funds. Today we learn that some pretty big banks, which are about as close to the Treasury market as you can get, also see a rise in Treasury yields next year.
ETF Trends: – PIMCO Total Return ETF manager Gross trims mortgages, treasuries. – Bill Gross, manager of PIMCO’s Total Return Fund and matching ETF, reportedly cut exposure to US Treasuries and mortgages before the Federal Reserve said it plans to keep rates low until unemployment falls below 6.5%.
ETF Trends: – Muni ETFs extend losing streak on tax jitters, bond flood. – The largest exchange traded fund indexed to municipal bonds was down for the seventh straight session Monday on fears the asset class may lose some of its tax advantages and as borrowers saturate the market with new issuance.
MarketWatch: Foreign Net Treasury Purchases Rebound in October - Foreigners bought a net $7.6 billion of Treasurys in October, up from net sales of $18.3 billion in September. Overall, foreign investors bought a net $28.4 billion of long-term U.S. securities in October, up from the $17.8 billion purchased in the prior month, the Treasury Department said.
Bloomberg: – Puerto Rico facing junk has worst year since ’08. – Debt of Puerto Rico, already facing the worst performance since 2008, is poised to weaken further after the U.S. commonwealth had its credit rating cut to one level above speculative grade.
USA Today: – Is it time to shift out of bonds? – Many Wall Street pros have been warning of a bond bubble for years — and advising Main Street investors to switch some money out of bonds and back into stocks, which have more than doubled in value since March 2009. But are bonds really riskier than people think.
Daily Markets: – Bond bull market not over yet. – Armed with record cheap debt, corporate Treasurers are becoming increasingly aggressive with how they use financing, a trend some analysts see as possible red flags for their bonds and stocks.
MSN: – Could budget fight rattle the bond market. – Most on Wall Street are confident that congressional Republicans and the White House will stave off the full “fiscal cliff” because the stakes are so high. Economists say the tax hikes and spending cuts could trigger a recession early next year. Confidence in a deal may be shaken, pushing Treasury yields lower, if the talks drag on too long.
Bloomberg: – Corporate bond sales reach $3.89 trillion to beat global record. – Corporate bond sales from the U.S to Europe and Asia surpassed 2009’s record to reach $3.89 trillion this year as borrowing costs plunged to the lowest ever.
The Arizona Republic: – Arizonians benefit from bond fund pioneer. – Lacy B. Herrmann might not be a household name in America or even his home state of Arizona, but the results of his quiet, behind-the-scenes community efforts are still paying off today. Lacy was a financial visionary and one of the earliest creators of single-state tax-free municipal-bond funds.
Financial News: – Fixed income exits set to soar as capital costs bite. – Less than half of investment banks are committed to running global fixed income businesses as regulatory and commercial pressures build, according to new research, fuelling fears of a liquidity drought in the secondary bond markets.
Learn Bonds: – How to invest in P2P loans with lending club. – In part 6 of our P2P lending series, Learn Bonds Marc Prosser talks about the pros and cons of different ways to invest with Lending Club.
BondSquawk: – Yield advantage with Oshkosh Corporation high yield bond. – Attempting to find yield in the current environment can be a difficult proposition. While yields are low, there are some strong relative value opportunities in the High Yield market.
Brad Thomas: – Why sound investors should consider my ‘Bond-Proxy REIT’ picking strategy. – My theory of Realty Income as a “bond-proxy” alternative goes that bonds are meant to stabilize your portfolio and dampen the volatility inherent with the violent swings of the stock market. In this way, bonds can significantly reduce the risk of your portfolio without reducing returns too much. Realty Income seems to meet both of these requirements with higher returns and income than the average bond fund. How?
Morningstar: – If a little is good more must be better. – As the Fed floods the markets with liquidity, market-implied inflation expectations soar higher. The intent of the Fed is to support the housing market by reducing rates on mortgages. The premise is that as house prices stabilize and rise, banks will become more willing to extend credit and consumer sentiment will improve as household net worth increases.
Morningstar: – We’d prefer to look elsewhere for yield. – In the search for yield many investors have set upon preferred stock, which is a hybrid security usually issued by highly leveraged companies, such as financial institutions, telecoms, and utilities. Preferred stock has characteristics of both bonds and stocks. But Preferred stock is not without its headwinds; in fact, there are many significant risk factors that investors must consider.
Bond Buyer: – Muni issuance winds down for the year end. – After two hefty weeks, issuance in the municipal bond market should enter its holiday period and ride out the rest of the year.
Gross: Fight the Wealth Tax Tip #4: Invest in developing economies w attractive balance sheets: Brazil,Mexico, best examples. Stocks & bonds
— PIMCO (@PIMCO) December 17, 2012
BBG Muni Brief: Moody’s rating shift affected $38B of Puerto Rico debt, including $5B worth that has been reduced to junk. (fireworks ahead)
— Cate Long (@cate_long) December 17, 2012
Muni supply only a quarter of last week’s $10bil+, let’s see if the sell-off abates
— David Schawel (@DavidSchawel) December 17, 2012