The End of the New Normal?…DoubleLine vs. TCW…Peripheral Bond Markets Soar…and more!January 18th, 2013 by Simon G
Businessweek: El-Erian says new normal may be coming to an end - did it ever really happen?
MPI Research: – The view from the top: Gundlach, TCW and MetWest. – Nominated as fixed income fund manager of the decade by Morningstar and now leading the fastest growing mutual fund (by assets) in history, Jeffrey Gundlach has enjoyed no shortage of accolades. Indeed, many investors and industry watchers suggest the bond king crown belongs on his head. But how well have his funds really performed compared to his two fiercest rivals, TCW (the firm that sacked Gundlach) and MetWest?
Economist: Peripheral country bond markets are soaring. Time to celebrate? - On January 10th the interest rate on Spanish ten-year government bonds fell below 5% for the first time in almost a year. Even though rates then ticked up a tad, the cost of new government borrowing is now about 2.5 percentage points lower than it was when worries over a break-up of the euro area peaked in July 2012 (see left-hand chart). The Italian patient is doing well too. The rate on ten-year Italian debt is approaching 4%, which is also close to 2.5 percentage points off the highs last year.
WSJ: – Don’t bet on a bear market for Treasurys. – Rising Treasury yields? That’s a bandwagon many have jumped on this year, but don’t try to sell the idea to die-hard bond bull and economic pessimist David Rosenberg.
ETF Trends: – Three big bond ETF surprises. – How did the reality of bond sector performance match up with investor fears? We took a look at the most well-known fixed income sectors to find the three biggest surprises in bond returns last year.
Learn Bonds: – Municipal bond tax exemption threat – Here’s what you need to know. – The municipal bond market breathed a sigh of relief recently when the fiscal cliff compromise on January 1st left the municipal bond tax exemption unaffected. Unfortunately for municipal bond investors however, this does not mean that the municipal bond tax exemption will not be revisited at some point in the future.
Bloomberg: JP Morgan is the latest to jump on the corporate bond electronic trading bandwagon. JPMorgan Chase & Co. (JPM), the biggest U.S. bank by assets, plans to start trading corporate bonds electronically in the early part of this year, joining Citigroup Inc. and Goldman Sachs Group Inc. in helping clients buy and sell debt among themselves.
Bloomberg: – Assured Guaranty cut by Moody’s as muni insurance dwindles. – Assured Guaranty Ltd. (AGO), the municipal-bond insurer whose biggest investor is Wilbur Ross, was downgraded by Moody’s Investors Service, which cited the industry’s “dramatic decline” since the subprime crisis.
Yahoo Finance: – Bond market entering shift not seen since 1946. – While equities inflate and implode with relative regularity, the process is much more gradual for those on the debt side. According to technical analyslt Louise Yamada we’re in year 33 of the current bond cycle and poised to start an era in which rates will rise. The last time the bond market made such a directional shift from lower to higher rates was 1946.
Bond Buyer: – Investors flocked to muni bond mutual funds. – Municipal bond mutual funds saw $43 billion in inflows in 2012, a huge increase over flows of the previous two years.
FT: – Rush to junk raises boom-era fears. – Did the “dash for trash” just become a full-on charge into the rubbish heap? A rush by investors into risky, high-yielding assets such as “junk” bonds has raised fears that the cheap money poured by central banks into the financial system has encouraged bigger bets on an economic recovery.
USA Today: – Risks for bond holders. – For years, most investors have heard talk of a brewing bubble in the once-sleepy bond market. But is there a bubble and if there is how bad will it be when it bursts?
WSJ: – Fund managers dismiss bubble talk amid rising bond prices. – Increasing investor demand and new sponsor opportunities look set to make 2013 a bumper year for the catastrophe bond market. Thomas Whittaker reports.
Barron’s: – High-grade bonds don’t compensate for liquidity risks. – Strategists at Barclays are the latest to opine that corporate bonds aren’t adequately compensating investors. In its latest Global Asset Allocator report, Barclays homes in on the investment-grade market, saying that market isn’t paying investors enough in comparison to Treasuries given that it’s far less liquid than the Treasuries market, but it says junk bonds still stand to gain further.
Reuters: – Five red flags for municipal bond investors. – There is a bubble forming in the municipal bond market, and millions of investors could be impacted if it bursts. Here are five red flags to heed to help keep you safe.
MarketWatch: – The good news in emerging-market corporate debt. – Any investor worried about the fiscal cliff or fretting about the sovereign debt of failing European countries should take comfort in the fact that it is not all doom and gloom. For those in search of a silver lining, we give you the undiscovered world of emerging-markets corporate debt.
Cate Long: – The end of muniland interest-rate swaps for Pennsylvania? – Interest rate swaps – complicated and sophisticated products – are not appropriate for public entities. Philadelphia is projected to lose $186 million on interest rate swaps gone bad. So is Pennsylvania doing anything to stop this scourge that is blanketing the state? Yes, Republican state senator, Mike Folmer, is organizing legislation to ban the use of interest-rate swaps. But he knows he’s in for a tough fight if he’s to succeed.
Katchum: – The state of the US bond market is getting worse. – I warned about a bond bubble before, stating that short interest in the commercials was going up dramatically. The last months we have seen weakness in the bond market as a result, but if you think it’s already over, I have to disappoint you.
Artemis: – Average expected losses of the cat bond market relatively static in 2012. – The average expected losses, as measured at deal issuance, of the outstanding catastrophe bond market remained relatively static throughout 2012.
ValueWalk: – Morgan Stanley has no plans to exit fixed income. – Morgan Stanley CEO James Gorman said in an interview with Bloomberg’s Erik Schatzker that “fixed income can be a terrific business” and “we’re getting there.” He said that “it would be foolish to exit.”
Gross: Mexican bonos (peso denominated) catch a good bid based on central bank doveishness. 5% yield for 5 year.
— PIMCO (@PIMCO) January 18, 2013
@davidbcollum Munis as asset class are doing great due to Fed adding so much liquidity. States/cities still face very tough fiscal probs tho
— Cate Long (@cate_long) January 18, 2013