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This mornings jobs report came in better than expected, with non-farm payrolls climbing 203k and private sector payrolls adding 196k. Overall, the unemployment rate fell to 7.0% down from 7.3% in October.
As ever, it’s always wise to take a look under the hood when looking at the jobs report. Here we find that average hourly earnings rose by 0.2%, but the year-over-year rate slowed to 2% and the working week increased by 6 minutes to 34.5 hours. It has been bouncing between 34.4 and 34.5 for most of the year.
So what does all this mean for a December taper? Many investors are saying that the upbeat data brings the Fed one step closer to scaling back its $85 billion-a-month bond-buying program.
In today’s WSJ, Alan Ruskin, chief currency strategist at Deutsche Bank in New York said. “The latest U.S. data falls into that rare terrain that unequivocally favors an early December tapering. After upbeat housing, GDP and confidence readings, Mr. Ruskin says the jobs report “likely clinches a December tapering.”
This could be a bad news for bondholders, the last time tapering was on the table, back in May, stocks slid and bond yields spiked. But this time bond prices appear to be taking it in their stride. In recent trade, the benchmark 10-year note was 15/32 lower in price, yielding 2.921%, according to Tradeweb. The yield rose from 2.855% ahead of the report.
While no one knows for sure if the Fed will taper in December, one things for sure. The Fed’s message about forward guidance and low interest rates is finally getting through. Judging by today’s market reaction, the taper may not be such a fearful event after all.
Money News: – Detroit bankruptcy decision may mean big trouble for muni holders. – The U.S. Bankruptcy Court decision Tuesday that Detroit can proceed with its bankruptcy filing was a warning shot for municipal bond investors around the country.
Income Investing: – Muni fund outflow streak hits 28 weeks. – It’s now 28 straight weeks of investor withdrawals for municipal bond mutual funds and ETFs, which just reported an $875 million net outflow for the week ended Wednesday, per the latest Lipper data. That’s pretty consistent with the $870 million withdrawal seen a week ago and the $855 million four-week moving average outflow.
Forbes: – Puerto Rico bonds ‘scoop and toss’: When increasing yield is not a good thing. – Most investors clamor for investments that generate a high yield, particularly when they have been pitched as safe and secure municipal bonds.
Bloomberg: – Record fund exodus propels biggest surge in trading. – A historic exodus from municipal mutual funds is propelling the biggest jump in trading in local debt since 2011 as individuals and money managers bet an expanding economy will drive up interest rates.
Reuters: – Detroit bankruptcy ruling: debt, crime and Anna Nicole Smith. – The 150-page court ruling finding Detroit eligible for bankruptcy focused on the city’s soaring crime, crushing debt – and the late Anna Nicole Smith.
CNBC: – I like municipal bonds for 2014 – Citigroup. – Suni Harford of Citigroup explains why she thinks municipal bonds are attractive for 2014. “We have historically seen a huge bounce back in municipals,” she says.
4 Traders: – Fitch takes various rating actions on enhanced municipal bonds. – Fitch Ratings has taken various conforming rating actions on enhanced municipal bonds and tender option bonds (TOBs) corresponding to actions taken on their associated enhancement providers or underlying bonds.
Learn Bonds: – All about convertible bonds. – If you’ve ever come across the term ‘convertible bond” and been perplexed by it, don’t feel badly. I didn’t have a clue as to what they were until many years into my investing life. They are a very intriguing asset class deserving of attention for your long term bond portfolio.
ETF Trends: – Inverse Treasury ETFs help hedge against rising rates. – Speculation on Fed tapering has pushed benchmark Treasury yields to a 11-week high. Consequently, bond investors have begun shifting out of long-term debt as rates rise, but the more aggressive trader can capitalize on tumbling Treasuries with inverse exchange traded funds.
Bloomberg: – Treasury yields reach 11-week high on Fed bets before jobs data. – Treasury 10-year note yields touched an 11-week high as reports showing the economy expanded and weekly jobless claims fell added to speculation the Federal Reserve will slow bond purchases as soon as this month.
Fox Business: – On Wall Street, all eyes are glued to 10-year Treasurys. – From online sales to housing starts, investors continue to be flooded with a never-ending stream of numbers. But these days there’s one that is clearly driving market action beyond all others: the climbing yield on the 10-year Treasury note.
BusinessWeek: – U.S. company bond sales of $1.48 trillion set annual record. – Sales of dollar-denominated corporate bonds soared to a record for the second straight year, led by speculative-grade borrowers that rushed to offer debt before the Federal Reserve cuts its unprecedented stimulus.
Bloomberg: – Corporate bonds suffer biggest weekly loss since June in Europe. – Company bonds handed investors the biggest loss in six months in Europe this week on concern borrowing costs will rise as the Federal Reserve starts paring stimulus.
BusinessWeek: – Taper defied with bond spreads least since ’07. – Corporate-bond buyers are accepting the lowest relative yields since before the 2008 financial crisis to own dollar-denominated notes that face declining returns as the Federal Reserve considers paring record stimulus.
Bloomberg: – U.S. bonds face bleak 2014 as Barclays forecasts extended losses. – Buyers of investment-grade corporate bonds in the U.S. are poised to suffer a second year of losses as interest rates climb with the Federal Reserve preparing to curtail its record stimulus, according to Barclays Plc.
Money News: – Junk-debt boom leads corporate bonds to record sales. – Sales of dollar-denominated corporate bonds soared to a record for the second straight year, led by high-yield borrowers that rushed to offer debt before the Federal Reserve cuts back on its unprecedented stimulus.
Forbes: – Bullish two hundred day moving average cross – JNK. – In trading on Friday, shares of the SPDR Barclays High Yield Bond ETF (AMEX: JNK) crossed above their 200 day moving average of $40.43, changing hands as high as $40.48 per share. SPDR Barclays High Yield Bond shares are currently trading up about 0.3% on the day. The chart below shows the one year performance of JNK shares, versus its 200 day moving average.
Emerging Markets Daily: – Which markets are most vulnerable as retail money leaves? – Post the Great Financial Crisis, in their search for yields, investors found a new darling – emerging markets local currency bonds. In the past four years, $500 billion foreign capital piled into EM local currency bonds. Foreigners now hold over a quarter of many markets’ domestic bonds.
The Street: – Investing abroad paid off this year. – Some financial advisors have long urged clients to diversify bond portfolios by including foreign issues. Not many investors have taken the recommendation. But this year it paid to look abroad. During the past 12 months, SPDR Barclays International Corporate Bond ETF (IBND) returned 5.0%, and PowerShares International Corporate Bond ETF (PICB) returned 3.3%, according to Morningstar. In comparison, the Barclays Capital U.S. Aggregate benchmark lost 2.1%.
ETF Trends: – Black Friday for Wall Street. – It’s widely known that Black Friday, the Friday after Thanksgiving, is the traditional kickoff for the Christmas shopping season. Much like retail shoppers, Wall Street is experiencing a similar event though it does not come with such a defined time period.
Bloomberg: – What was the best performing bond fund of 2013? – The top-performing bond fund’s key advantage this year was its equity-like characteristics.
— PIMCO (@PIMCO) December 6, 2013
— PIMCO (@PIMCO) December 6, 2013
"Individuals have pulled $52 billion from muni mutual funds this year, the most in at least two decades …"
— Bond Girl (@munilass) December 6, 2013