This Week’s Top Bond Market Stories – February 1st Edition

February 1st, 2014 by

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LearnBonds

LearnBonds: – Why Treasury rates are falling again. – Interest rates are still expected to go up in this year. But, as we saw two and three years ago, international flows of funds can have major impacts on just where interest rates end up.  Investors in the bond market need to take into consideration these international flows of funds for they are going to affect the volatility in the bond market.

LearnBonds: – Emerging market corporate bonds. – Emerging market corporate bonds carry a high degree of risk, one of the highest of the global bond market, but offer the potential for very high yield.  They are excellent for investors looking for assets that are based in fast-growing emerging market economies.

LearnBonds: – Thinking strategically about bonds. – For investors whose prime focus is income, scrutinization of all security options and consideration of one’s time horizon is an absolute necessity in today’s difficult low interest rate environment.

LearnBonds: – The quest for fire (and a burning room). – Market volatility witnessed last Thursday and Friday caught many investors and market participants by surprise. Defenders of Emerging Markets (and other high risk asset classes) point out that not much has changed regarding the underlying fundamentals of most emerging market nations. There are indeed positives in emerging markets.

LearnBonds: – This type of dividend-growth investor should consider fixed income. – In a world in which central banks openly admit a desire to influence prices in a way that causes life to become more expensive for everyone, investments with a high likelihood of growing payouts are absolutely worth considering.  This is especially true for the “buy-and-hold-forever” type of investor.

 

Municipal Bonds

ValueWalk: – Explaining Puerto Rico’s falling bond yields. – Puerto Rico is either close to default or pulling through with enough liquidity to benefit from the US recovery (no one would argue the island is doing great), but Moody’s Corporation has threatened a downgrade and everyone knows the risk in Puerto Rican muni bonds is high, so it’s strange that the yield has fallen since the beginning of the year.

Bloomberg: – Travelers sweet-spot call vindicated in bond rally. – A rebound in the $3.7 trillion municipal market is vindicating investments from Travelers Cos. (TRV) and Loews Corp. (L), which bet on local debt even as individuals fled at a record pace.

Fort Mill Times: – Proposed HQLA rules may affect muni market liquidity. – The proposed high quality liquid asset (HQLA) rule could negatively affect liquidity in the municipal bond market.

Governing: – Will the 2014 muni market be good for issuers? – When he looks back at last year, George Friedlander, chief municipal strategist at Citigroup, sees it as “one of the most challenging years” on record for the municipal bond market.

Barron’s: – Three’s a trend: Muni funds see third straight weekly inflow. – Muni-bond mutual funds and ETFs officially have a genuine winning streak going, reporting a third straight week of net inflows, per Lipper data, as investors return to the muni-bond fold amid this January bond rally.

Reuters: – Puerto Rico deserves credit for fiscal reforms. – Puerto Rico finance officials trying to avoid junk bond ratings for the Caribbean island are emphasizing recent tax hikes, spending cuts and other fiscal reforms in meetings with U.S. credit agencies, Puerto Rico’s governor said on Tuesday.

BondBuyer: – Munis’ strength provides eye-catching opportunities for investors. – Municipals have caught the attention of analysts as they outperformed Treasuries and posted their best start to a year since 2009.

Junius: – Short-term, high yield municipal bond ETF. – On January 14, Market Vectors launched a new ETF, the Market Vectors Short High-Yield Municipal Index ETF (SHYD), which seeks to track the performance of the Barclays Municipal High Yield Short Duration Index.

Barron’s: – Rebalance with munis. – After a remarkable year for stocks in 2013, and now a selloff, the importance of periodically rebalancing portfolios, and taking profits at the right time, is once again apparent. And yet what to do with that historic but now troubled ballast, the fixed income portion of the portfolio? According to Wilmington Trust chief investment officer Rex Macey, for high net worth individuals, municipal bonds offer the best returns based on their relative risk and their inherent tax benefits.

BondBuyer: – Muni calendar shows slow growth. – Municipal bond issuance will stay light in the coming week as the calendar offers little to sate investors’ growing hunger for tax-exempt paper.

Barron’s: – Will the muni rally see spring? – At long last, municipal bonds have had a great month. Don’t get used to it. The muni market bid farewell to a terrible 2013 in which it lost 2.6%, underperforming a broader bond market that lost 2%.

 

Education

ETF Database: – Why duration matters. – A major fixed income strategy in 2013 was duration rotation, investors reducing the interest rate risk of their portfolios. As the term “duration” becomes increasingly prevalent in our conversations on The Blog and elsewhere, I thought it would be good to explain this concept.

 

Treasury Bonds

Marketplace: – What investors love about the Treasury’s new toy – it floats! – The U.S. Treasury rolls out a brand new toy today. Now, we’re talking about the Treasury here, which means the toy is a kind of bond, but investors are excited for a couple of reasons. It’s the first new product the Treasury has released in years, so there’s a novelty appeal. And, unlike all of the rest of the Treasury’s products, this toy floats!

WSJ: – Treasury yields slip to new 2014 lows. – U.S. Treasury prices rallied as lingering concerns about global growth and emerging-market policies boosted investors’ appetite for safer assets.

FT: – Pension plan rotation boosts U.S. Treasuries. – U.S. government bonds are on course for their best monthly performance since the summer of 2012 as big pension funds have cashed in their equity gains and moved into long-dated Treasury debt.

Zacks: – Long-term Treasury ETFs back in focus. – After a lackluster 2013, the fixed income world is finally gaining some traction this year. In particular, investors are adding long-term Treasuries to their portfolio as surprisingly weak jobs growth and low inflation for December raised concerns about sustained economic improvement and continuation of Fed taper plans.

FT: – BoJ’s easing may not compensate for Federal Reserve’s taper. – Axa runs a tight ship in Tokyo. The Japanese arm of the giant French company tries to make so much money from selling insurance and other services that it doesn’t have to worry about margins on its Y5tn ($48bn) portfolio of investments, more than half in government bonds.

 

Investment Grade Bonds

BusinessWeek: – Credit swaps in U.S. fall as economy grows; Verizon plans bonds. – A measure of U.S. corporate credit risk declined as data showed the economy expanded at a 3.2 percent pace in the fourth quarter and Americans’ spending climbed. Verizon Communications Inc. (VZ:US) is planning a bond sale.

BusinessWeek: – Credit swaps in U.S. fall as economy grows; Verizon plans bonds. – A measure of U.S. corporate credit risk declined as data showed the economy expanded at a 3.2 percent pace in the fourth quarter and Americans’ spending climbed. Verizon Communications Inc. (VZ:US) is planning a bond sale.

 

High-Yield

Zacks: – 5 Highest yielding Zacks #1 ranked high yield bond mutual funds. – These lower rated securities carry high coupon yields to compensate investors for the associated risk. However, they can maximize total returns by generating high interest income and capital appreciation over the long term. Mutual funds investing in these securities significantly reduce the associated risk through diversification and should be a part of the portfolio of every investor looking at maximum returns.

Digital Journal: – Increased risk, yet a positive 2014 for U.S. leveraged credit. – In its outlook for 2014, DDJ Capital Management, LLC, an institutional manager of high yield, special situations and bank loan investments for investors worldwide, forecasts increased risk along with positive returns for investors in non-investment grade bonds and leveraged loans, which comprise the U.S. leveraged credit market.

WSJ: – Junk bond issuance slows in Europe. – European companies with weaker credit ratings are selling bonds at the slowest pace in five years even as borrowing costs remain around the lowest on record. Since the start of January, European firms with sub-investment grade—or junk—ratings have issued $3.6 billion of bonds, below one-third of what was sold in the opening weeks of 2013 and the lowest at this stage of the year since 2009, according to data provider Dealogic.

Kimble Charting: – Bullish pattern in junk bonds! Time to “touch the junk” now? – Its been a tough past 12-months for Junk Bond ETF’s JNK & HYG! Performance is nothing to write home about and has lagged the S&P 500 by almost 20%.

ETF Trends: – Time to jump for junk. – High-yield bonds and the exchange traded funds that hold those bonds are viewed by professional investors and traders as accurate gauges of market risk appetite.

Investment Europe: – Interest rates key concern for global high yield investors this year. – Tim Dowling, head of Credit Investments and lead portfolio manager Global High Yield at ING IM, says interest rates are key for high yield investors this year.

IFR Asia: – Market wide open despite EM nerves. – Any fears that emerging market volatility would shut the U.S. high-yield primary market evaporated on Monday as five issuers announced new deals, spurred by more stable market conditions and the relatively good performance of recent new deals.

Forbes: – Forest laboratories sets $1.8B high yield bond deal backing Aptalis buy. – Drugmaker Forest Laboratories has entered the market this morning with a $1.8 billion, two-part senior offering to fund the acquisition of Aptalis. The deal, comprising five-and seven-year bullet notes, comes off the shadow backlog and will be pitched in a 10:00 a.m. EST conference call, with pricing this afternoon, sources said.

Jeroen Jongbloed: – High growth and strong balance sheet make Honeywell a buy. – On January 24th Honeywell released its 4th quarter and full-year results for 2013. Revenues are up by 4% compared to FY2012, at $39.055 billion. Earnings per share were up by an amazing 11%, reaching $4.97. The company aims to increase its EPS by another 8%-12% in fiscal year 2014. Does this mean Honeywell is a good stock to own at the current price of $88.47? This is the question I will be trying to answer in this article.

 

Investment Strategy

Trefis: – How to profit from the coming rush in bonds. – The following chart suggests that investors are leaning towards security—in this case, the bond market—and not really participating in the stock market. They don’t like risk. This can be an indicator of where the key stock indices may be headed next.

ETF Trends: – Fixed income ideas for the next cycle. – If the traditional fixed income indices like the Barclays U.S. Aggregate Index or the IBoxx US Dollar Investment Grade Corporate Bond Index are no longer the ideal fixed income investments for the next cycle, then what exposures should investors consider as alternatives?

bradenton.com: – Investors column: Avoiding bond suicide. – Is it any wonder that the concept of the “conservative investor” is evolving? Inflation, higher interest rates and a red-hot stock market, heading towards correction, are creating a new breed of conservative investor.

The Gazette: – Concentration can be counterproductive in an investment portfolio. – During my career as a banker and now as an investment adviser, I have had the opportunity to see many different types of investment portfolios. One thing that I have learned to look out for is “overconcentration”.

Donald Van Deventer: – 20 best value bond trades. – On January 23 in the U.S. bond market, there were 34,551 bond trades in 5,146 non-call fixed rate corporate bond issues representing $12,013,821,730 in notional principal. Which 20 trades were the best trades of the day, and how do we decide the answer to that question? We answer those questions in this note.

Kiplinger: – Time to sell your Pimco funds? – Mohamed El-Erian’s departure leaves Bill Gross alone at the top of the mutual fund giant. You may do better with bond funds elsewhere.

Emerging Markets

WSJ: – Emerging-markets believers keep the faith. – Financial advisers say they are undeterred by the selloff of emerging-markets investments, although they are spending time calming down jittery clients.

Quartz: – Will the emerging market rout get even worse? Watch corporate bonds. – Global investors have suddenly remembered that emerging markets have a rich, recent history of florid financial crises.

WSJ: – Corporate debt in emerging world shines. – A bright spot is emerging in the gloom that has enveloped developing markets in recent days: dollar-denominated corporate debt. Funds with exposure to these bonds, which investors say are more insulated from political instability than is government debt, have outperformed.

FT: – BlackRock favours emerging markets dollar debt. – Emerging market assets priced in dollars or euros may insulate investors from the turmoil in local currency debt as volatility intensifies in these markets, according to BlackRock, the world’s largest money manager.

TheStreet: – Best way to play emerging markets may be bonds. – Despite growing concerns over emerging markets, David Robbins, portfolio manager responsible for emerging market strategies at TCW, told TheStreet’s Gregg Greenberg there is a way to safely play the asset class.

BusinessWeek: – Morgan Stanley more bearish on EM debt as funding costs increase. – Morgan Stanley turned more bearish on sovereign and corporate debt in emerging markets as declines in their currencies accelerated and funding costs increased.

 

Catastrophe Bonds

Artemis: – More state & government backed catastrophe bonds expected. – We should expect to see more catastrophe bonds being issued by state and government backed insurance entities in the future, as investor demand remains high and costs of sponsoring a cat bond come down, according to Fitch Ratings.

 

Bond Funds

WSJ: – Long-term mutual fund inflows $7.8 billion in latest week. – Long-term mutual funds posted estimated inflows of $7.8 billion in the latest week, as investors put more money into equity and hybrid funds, according to the Investment Company Institute.

ETF Daily News: – 3 bond ETFs seeing strong inflows. – 2013 can easily be labeled as a year which brought out clear winners and losers in the investment world. While equities clearly won the show, bonds and commodities were struggling in the red.

CNBC: – Cramer: There’s something you should know about bonds. – There’s something you should know about bonds. Jim Cramer isn’t sure you should lean on them as a big part of your retirement plan.

WSJ: – What worries Bill Gross, plus: His market picks. – PIMCO’s Gross explains how much investors can lose if rates rise, plus the dangers of borrowing and what investors should buy now.

Investors.com: – Despite emerging markets slide pros see lots to buy. – That sound of fast-moving feet you’ve been hearing? Those are more investors heading to the exits, adding to the ongoing exodus from key emerging markets.

Zacks: – Zacks #1 ranked government bond funds. – Conservative investors prefer debt instruments not only because they safeguard the capital invested but also for the regular income flows they provide. Bonds bring a great deal of stability to an equity-heavy portfolio while providing dividends more frequently than individual bonds. U.S government bonds funds usually invest in Treasury bills, notes and securities issued by government agencies. They are considered to be the safest in the bond fund category and are ideal options for the risk-averse investor.

MarketWatch: – Bond rally shows Fed tapering fears were overdone. – That seemed to be the thrust of the 2014 Barron’s Roundtable . After a year that was brutal for all income-oriented investments, the panelists on Barron’s annual Roundtable — which include some real heavyweights such as Pimco’s Bill Gross, O.S.S. Capital’s Oscar Schafer, GAMCO Investors’ Mario Gabelli and Goldman Sachs’ Abby Joseph Cohen, among others — are broadly bullish on bonds.

Chillicothe Gazette: – Keep more of earnings with tax-free bonds. – For many investors, taxes have been climbing. Obamacare surcharges, capital gains tax increases and other tax changes have caused many Americans to pay more in taxes than they have in recent years.

TheStar: – Why ETFs have lost ground to mutual funds: Roseman. – Exchange-traded funds grew quickly until 2013. Mutual funds regained their momentum last May, as investors worried about higher interest rates.

 

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