The Next 20 Years for Bonds…Don’t Abandon Bonds…Desperately Seeking Yield… and more!March 7th, 2013 by Simon G
Financial Advisor: – What does the next 20 years for bonds look like? – What comes down must eventually go back up. What will this reversal in the direction of interest rates mean for bond investors over the next 20 years? To provide one poss4ible answer to this question, I examined the last 100 years of bond market history.
ETF Trends: – Taking the pulse of bond ETFs. – Vanguard Chief Investment Officer Tim Buckley, tells investors not to abandon bonds. Mr. Buckley said. “They serve a great diversifying purpose in the portfolio. When the equity markets zig, it’s the bond markets that can zag. The other bit about bond funds is that as rates go up, yes, you may have a principal loss, but you’ll be reinvesting at a higher rate. If you stick with the portfolio, you can be better off over the long term.”
The Economist: – Desperately seeking yield. – Several years of historically low interest rates have caused many to speculate on where the next bubble might occur. One possibility is the corporate-bond market, where yields have fallen remorselessly. The dangers are twofold. The first is that investors are not allowing for a sufficiently high margin, or spread, over government-bond yields to compensate for the higher risk that companies may default. The second is that bond yields could rise (and prices fall) if either the economy returns to robust growth or inflation rises sharply.
Proactive Investors: – Why bond market bulls are about to get crushed. – Casey Research Chief Economist Bud Conrad has a warning for bond investors. “Rates on everything from high-yield corporate bonds to government bonds – which are considered the safest – are way lower than they should be. Consider the high probability of inflation ahead, the currency exchange rate risk, and the eventual default risk. All three risks are totally undiscounted by the market, because of the distortion created by the Fed. That will hit its limit at some point.”
Learn Bonds: – The new bond king has been buying Treasuries. – In recent weeks, the man I now regard as the one-and-only “Bond King,” Jeffrey Gundlach (sorry Bill Gross), has been buying Treasuries, reversing his previous bearish stance on U.S. government debt.
George Putnam: – High yield bonds: Time for even more caution. – This year, I urge more caution towards high yield bonds. The yields on junk bonds are at record low levels–below six percent–and I believe that at those levels you are not being adequately compensated for the risks you are taking. Last year you got away with it, this year you might not be so lucky.
Fox Business: – Frontier Bonds: Are the yields worth the risks? – Frontier bonds are joining more indexes and getting more attention as global bond yields elsewhere slump, says Francesc Balcells, an executive vice president for investment firm PIMCO’s Munich office. While they offer a potentially higher return, they also pose greater risks. So are the yields worth the risks?
Bloomberg: – Covenant arbitrage exploited in high-yield bonds. – The hundreds of pages of tedious documents that govern every corporate bond sold are suddenly a hot commodity as traders look for an edge with the biggest bull market ever in junk debt slowing.
Barron’s: – More and more investors are shorting HYG, JNK junk-bond ETFs. – Short interest on junk bond ETFs run by BlackRock and State Street has grown rapidly in recent weeks and touched its highest levels since October 2007. The growing number of “short” positions shows that investors are now buying protection against a reversal in high-yield debt, while shifting money into other assets such as stocks and loans.
Reuters: – Municipal bond market contracts slightly in Q4. – The amount of outstanding US municipal bonds dropped slightly in the fourth quarter of 2012, to $3.714 trillion from $3.719 trillion in the third quarter, according to Federal Reserve data released on Thursday.
Ed Bradford: – US Treasurys tightening. – Handy reference guide for UST curve (2s 10s) showing the past two tightening/easing cycles.
Bullion Vault: – Investors should buy gold and corporate bonds. – Strong performance by major US equity markets is in large part down to prolonged accommodative monetary policies from the Fed, according to one long-serving Wall Street economist. David Rosenberg, chief economist and strategist at wealth management firm Gluskin Sheff, made a case this week for investors to buy gold and corporate bonds as part of their portfolio, expressing concern over how dependent stock prices are on Fed policy.
FundWeb: – Corporate bonds for 2013. – Corporate bonds will remain attractive investment opportunities over the coming year despite prevailing debt issues, according to analysts at L&G Investment Management.
Barron’s: – J.C. Penny bonds: After downgrade and divergence, double-digit yields. – Not much has gone right for J.C. Penney, and the retailer’s woes haven’t spared its bondholders. Last week Standard & Poor’s cut JCP into deep, deep junk territory with a negative outlook. Its 5.65% bond due 2020 has plunged to 76 cents on the dollar down from 87.5 two weeks ago. That’s a nice yield if you believe JCP can turn things around.
WSJ: – Jitters keep easing for euro-zone bond markets. – Nervousness in European bond markets continued to abate Thursday with Spain garnering robust demand at a sovereign debt sale and Portuguese bond yields falling to a one-month low after Standard & Poor’s upgraded its outlook on the country’s debt to stable.
Gross: BOJ, ECB, BOE laying in the underbrush. They will pounce soon with more check writing. Inflationary consequences globally.
— PIMCO (@PIMCO) March 7, 2013
investors should take an Eagles approach to the muni market and invest for the “long run”…March is a gift that buyers should welcome..
— Michael Pietronico (@MillerTabak) March 7, 2013
Huge debate in bond land right now: if sell off continues, does back side of the curve bear flatten or bear steepen?
— Ed Bradford (@Fullcarry) March 7, 2013