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Bets on U.S. inflation heat up in bond market

Bets on U.S. inflation heat up in bond market

NEW YORK (Reuters) – More investors are favoring U.S. bonds that profit from a pickup in inflation as the global economy gathers momentum with oil and other basic commodity prices recently hitting multi-year highs.

As a result, market forces in key economies and efforts by their policymakers might finally be aligning to lift inflation to 2 percent, a level the Federal Reserve and its counterparts in the euro zone and Japan desire but have failed to see for years, analysts and investors said.

If U.S. inflation hits that elusive level, Treasury Inflation Protected Securities could score solid gains in 2018, producing higher returns than regular U.S. government bonds.

“There’s global synchronized economic growth. Inflation is heading upward,” said Com Crocker, senior inflation analyst at New Century Advisors based in Chevy Chase, Maryland.

That upbeat view spurred $465.50 million of cash into funds that focus on TIPS in the week ended Jan. 3, bringing their total assets to an all-time peak of $67.39 billion, according to Lipper, a Thomson Reuters mutual fund research unit.

Last week’s net inflows into TIPS mutual and exchange-traded funds were the most in 10 months.

In the United States, inflation could be on the cusp of breaking higher, with passage of the biggest overhaul of the U.S. tax code in 30 years in December supporting bets of at least a near-term boost to business investment and hiring.

Adding to that are expectations of further weakness in the dollar, just off its worst annual performance since 2003, which would make foreign-made goods more expensive in the United States.

Meanwhile in the euro zone, signs of regional inflation gathering momentum has stoked speculation the European Central Bank might not renew its stimulative 2.55 trillion euro bond purchase program when it expires in September.

And in Japan the central bank scaled back its bond purchases on Tuesday on signs of improving domestic growth, sparking a global bond market selloff on fears the Bank of Japan may pare back stimulus later this year.

These factors augur the case to owning TIPS, but the lack of U.S. wage acceleration despite the lowest jobless rate in 17 years has curbed a wholehearted embrace of the $1.3 trillion sector.

“There’s no pressure from wages,” said Fred Marki, portfolio manager at Western Asset Management Co. in Pasadena, California. “It’s not enough to create excess demand with rising inflation.”


Another reason against loading up on TIPS is the global selloff in bonds so far in 2018, which intensified on Wednesday following a Bloomberg report that China might slow or stop its purchases of U.S. Treasuries in a review of its foreign exchange holdings.

China is the biggest foreign holder of U.S. government debt, with holdings totaling $1.19 trillion as of October.

Still some investors are betting on more gains in TIPS as the yield gap between 10-year TIPS and regular 10-year Treasuries broke 2 percent last week for first time since March. It reached 2.05 percent on Wednesday.

This measure of investors’ inflation expectations in the next decade has risen steadily from 1.66 percent last June amid surges in the price of oil and other commodities.

On Wednesday, U.S. crude futures reached a three-year peak above $63 a barrel on tightening supply, while zinc hit a decade-plus high on Tuesday


While more investors see TIPS as an inflation hedge, with an improving economic backdrop some analysts see stocks, corporate bonds and other riskier investments producing higher returns than TIPS.

“We are thinking of adding a bit of TIPS. It’s not a bad place for fixed income investors, but a better place to beat inflation would be equities,” said Andrew Richman, director of fixed income with SunTrust Advisory Services in Jupiter, Florida.

In 2017, TIPS produced a 3.0 percent total return, a tad better than 2.3 percent for standard Treasuries. Both trailed Wall Street’s record run with the S&P 500 racking up a 19.4 percent increase, the strongest since 2013.

Much of TIPS’ gains stemmed from rising inflation expectations. TIPS yields or “real” yields, have held in a tight range since late September.

The 10-year TIPS yield was last at 0.55 percent on Wednesday, up over 3 basis points on the day.


Since 2012, U.S. inflation has tended to pick up at the start of the year only to fade due primarily to a seasonal decline in oil prices.

The year-over-year increase on the Fed’s preferred inflation gauge, the core rate of personal consumption expenditure, has not topped 2 percent since February 2012. It was running at 1.5 percent in November.

The Consumer Price Index, which measures a broader basket of goods and services, ran at 2.2 percent on a year-over-year basis in November.

TIPS principal and interest payments are adjusted against the CPI.

The Labor Department will release its December CPI report at 8:30 a.m. (1330 GMT) on Friday. Analysts polled by Reuters forecast the CPI likely rose 0.2 percent in December for a year-over-year increase of 2.1 percent.

Even if CPI grows modestly, it would be enough to entice investors.

“TIPS look attractive as a form of insurance,” Western Asset’s Marki said. “The demand for TIPS will remain.”

Reporting by Richard Leong; Editing by Daniel Bases and Chizu Nomiyama

Published at Wed, 10 Jan 2018 18:18:57 +0000

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U.S. bond fund investors stirred, not shaken

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., October 25, 2016. REUTERS/Brendan McDermid

U.S. bond fund investors stirred, not shaken

NEW YORK (Reuters) – U.S. fund investors pumped millions into bond funds for a 50th straight week, the Investment Company Institute (ICI) said on Wednesday, showing that caution in recent weeks may not portend a flight from debt generally.

Taxable-bond mutual funds and exchange-traded funds (ETFs) took in $839 million during the turbulent week ended Nov. 15, the lowest in nearly a year, as high-yield debt came under pressure, according to the trade group.

But the funds still have not posted a week of outflows in nearly a year that has seen them pull in nearly $270 billion, according to Thomson Reuters’ Lipper research unit.

This year, as markets have been transfixed by stocks and other risk assets scaling record peaks, bonds have been the clear winner among U.S. funds, taking in more than $2 for every $1 gathered by their equity counterparts, according to data from Lipper.

“There’s not a lot of value for the amount of risk that you’re taking in the high-yield market,” said Tracie McMillion, head of global asset allocation at Wells Fargo & Co’s Investment Institute, referring to higher-risk bonds issued by corporations and local municipalities.

“We don’t think this is the end of the bull market. We just think we’re later in the cycle so it’s a time to start getting a little more cautious.”

U.S. fund investors walloped high-yield funds with their fourth-largest weekly withdrawals on record during the week ended Nov. 15, according to Lipper, as investor sentiment deteriorated following setbacks to several corporate mergers and in U.S. tax reform efforts.

The funds have brought some of that money back in the days since.

Overall, bond funds took in $1.5 billion during the week, aided by a 19th straight week of flows into municipal funds, ICI said. Stock funds posted $54 million in outflows, with $4.2 billion in domestic stock outflows almost offset by a 50th consecutive week of inflows for funds focused abroad.

Reporting by Trevor Hunnicutt; Editing by David Gregorio

Published at Wed, 22 Nov 2017 18:56:31 +0000

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Investors scoop up billions in bonds, most since July: ICI

by Pexels from Pixabay


Investors scoop up billions in bonds, most since July: ICI

NEW YORK (Reuters) – Investors throttled up their bond exposure in the latest week, adding the most cash to U.S.-based debt funds since July as momentum for U.S. stock funds stalled, Investment Company Institute (ICI) data showed on Wednesday.

More than $11 billion rolled into U.S.-based bond mutual funds and exchange-traded funds (ETFs) during the week ended Sept. 20, including a 42nd consecutive week of inflows for taxable-bond funds, the trade group said.

Domestic stock funds continued to struggle, with outflows of $2.1 billion during the week, according to the ICI.

Meb Faber, chief investment officer at Cambria Investment Management LP, said people may be starting “to get jittery” about U.S. stocks after an unusual bull run that has lasted more than eight years fueled by demand for ETFs and corporations buying back their own stock.

“The outlier really is the U.S. on the expensive side. Most of the rest of the world is normal to quite cheap,” said Faber.

“People may just be running out of places to find yield.”

World stock funds also netted cash for the 42nd consecutive week, attracting $3.1 billion during the seven-day period.

International stocks are on pace to chart their best performance against U.S. equities since the 2009 global financial crisis, according to MSCI Inc data. They underperformed in each of the last four years.

The rebound in international stocks is likely to be sustained, Faber said. “We think it is a multi-year process.”

Reporting by Trevor Hunnicutt; Editing by Richard Chang


Published at Wed, 27 Sep 2017 19:58:35 +0000

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Bond market braces for impact of New York’s free tuition plan


Bond market braces for impact of New York’s free tuition plan

By David Randall| NEW YORK

Little known private colleges that are already struggling to grow their revenues are facing a new threat that could further weaken their finances and make borrowing harder: free tuition at public universities.

The State of New York passed in April a bill that will by 2019 offer free tuition at community colleges and public universities in the state to residents whose families make less than $125,000 per year. At least six other states are considering similar laws, to ease the burden of student debt that has doubled since 2008 to over $1.3 trillion, according to the Federal Reserve Bank of New York.

Fund managers expect that such initiatives, combined with other pressures that have long been building up, will cause bonds issued by smaller private colleges to fare far worse than the broader market if interest rates continue to rise.

So far the bond market has largely ignored such a threat as historically low rates encourage many investors to take on greater risks in search for better yields.

“There are many schools that are going to be losers in this game,” said R.J. Gallo, a portfolio manager at Federated Investors in New York.

Gallo, who owns debt issued by well-known institutions such as Northeastern University in Boston and Northwestern University in suburban Chicago, said that bonds of lower-rated schools yield only about 1.3 percentage points more than AAA-rated ones. That, for him, is not enough to compensate for the additional risk.

Nearly 80 percent of college-age students in New York qualify for the scholarship, according to state estimates. While the state has yet to say how many new students it expects to take advantage of the plan, analysts say that they expect a significant number forgoing private colleges located in the Northeast and opting for public options instead.


The prospect of competition from free public programs comes at a time when many private colleges are already forced to offer incoming students discounts because of stagnant personal incomes and years of above-inflation tuition hikes.

The proportion of gross tuition revenue that is covered by grant-based financial aid averaged a record 49.1 percent for full-time freshmen in the current school year, according to a May 15 report by the National Association of College and University Business Officers.

The average U.S. private non-profit four year institution charges $45,370 per year in tuition, room and board, a 12 percent increase over the last five years, according to the College Board. Graphic:

Moody’s forecasts that financial pressures will triple the number of schools that close their doors nationwide from today’s rate of two to three schools per year. Free public education will add to those pressures, said Christopher Collins, an analyst at Moody’s.

“It’s a highly competitive sector and there’s also now the fact that these really small schools are competing with public colleges and universities with a much lower price,” he said.

Given that there are more than 1,000 private colleges and universities nationwide, closures are rare.

Earlier this year, Connecticut’s Sacred Heart University and St. Vincent’s College announced plans for a potential consolidation. Last November, Dowling College in Long Island, New York, filed for bankruptcy after defaulting on $54 million in debt issued through local government agencies.

New York’s scholarship plan alone is unlikely to cause any private school to go under, said college financial aid expert Mark Kantrowitz, the president of consulting service Cerebly Inc. Instead, regional private schools that tout their small class sizes may lose their appeal if the competition from free programs forces them to lower tuition and they try to offset that by increasing enrollment.

“These colleges justify their costs by saying that you will get a more personal education, but will increasingly start to fail,” he said, adding that he expects to see more private colleges closing their doors over the next decade.

Nicholos Venditti, a bond fund manager at Thornburg Investment Management in Santa Fe, New Mexico, said he has been cutting his funds’ exposure to private college debt in part because other states could soon emulate New York’s model.

“If free tuition becomes a widespread phenomenon, it puts pressure on every higher education model throughout the country,” he said.

(Reporting by David Randall; Editing by Jennifer Ablan and Tomasz Janowski)
Published at Tue, 23 May 2017 12:55:48 +0000

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Pimco revamps BOND ETF, changing fund’s name and managers


By Trevor Hunnicutt and Jennifer Ablan| NEW YORK

Pacific Investment Management Co (Pimco) is replacing the full slate of managers on its Total Return Active Exchange-Traded Fund (BOND.P) and changing its name, a spokeswoman for the fund management company said on Wednesday, the latest transformation for what was once the largest actively managed ETF.

The fund’s new name will be the Pimco Active Bond ETF. Managers Scott Mather, Mark Kiesel and Mihir Worah are being replaced by David Braun, Jerome Schneider and Daniel Hyman.

The ETF’s ticker, BOND, will remain, a Pimco spokeswoman said.

Once run by Pimco co-founder Bill Gross, the ETF’s assets have fallen to $2 billion from $5.2 billion at its 2013 peak.

The new managers bring “the right mix of expertise and experience in an evolving ETF investing environment where clients are seeking more income,” at a time of low rates and low returns, the spokeswoman said in an emailed statement.

The ETF will change its stated goals, including adopting new rules that allow fund managers to build more exposure to high-yield junk bonds and have more flexibility on how much interest rate risk they will take on. Investors expect U.S. interest rates to rise.

The changes are expected to take effect by May 8, pending regulatory approvals.

The Pimco Total Return Active ETF was an actively managed intermediate-term ETF intended to mimic the strategy of Pimco’s flagship mutual fund, the Pimco Total Return Fund, which was also run by Gross.

BOND first began losing assets in September 2014 after the U.S. Securities and Exchange Commission said it was looking into whether Pimco inflated returns of the fund, then managed by Gross. That same month, Gross abruptly left Pimco in a messy split. He now works for Janus Capital Group Inc (JNS.N)

Pimco agreed in December to pay $20 million to settle charges it misled investors about the fund’s performance. The company did not admit or deny the findings, and said at the time that it has enhanced its policies.

Pimco, which managed nearly $1.47 trillion on Dec 31 and is based in Newport Beach, Calif., is a unit of German insurer Allianz SE (ALVG.DE).

“While BOND was a strong asset gatherer in early days, it has shed assets,” facing competition from funds managed by Fidelity Investments and DoubleLine Capital LP’s Jeffrey Gundlach, said Todd Rosenbluth, director of ETF and mutual-fund research at S&P Global Market Intelligence.

“While investors will likely wait to see what changes in the exposures, the move could restart asset growth.”

Schneider currently manages Pimco’s largest ETF, the Pimco Enhanced Short Maturity Active ETF (MINT.P), and runs the company’s short-term and funding desk.

Mather, Kiesel and Worah will continue to manage the Pimco’s flagship mutual fund, the Pimco Total Return Fund, which was once the world’s largest bond fund at a peak of $292.9 billion in assets.

The Total Return Fund now oversees assets under management of $74 billion as of the end of February, despite solid performance over the last 12 months.

(Reporting by Trevor Hunnicutt and Jennifer Ablan; Editing by Frances Kerry and David Gregorio)
Published at Wed, 08 Mar 2017 19:42:36 +0000

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U.S. bond funds attract cash, shaking off inflation fears

U.S. bond funds attract cash, shaking off inflation fears

By Trevor Hunnicutt

U.S.-based taxable bond funds netted cash for the first time in four weeks, Lipper data released on Thursday showed, a sign that savers may be less wary than the Federal Reserve of inflation under the incoming Trump administration.

The funds attracted $1.2 billion in the week through Jan. 4, the research service said, even as minutes from the Fed’s December meeting released on Wednesday showed concerns that quicker economic growth under President-elect Donald Trump could require faster-than-expected interest rate hikes to ward off inflation.

The central bank’s policy-setting committee unanimously raised rates last month by a quarter of a point.

Bonds sold off after the Nov. 8 U.S. presidential election on fears that the new administration’s plans to stimulate the economy with tax cuts and infrastructure spending could also stoke bond-harming inflation.

Despite some withdrawals, investor demand for bond mutual funds and exchange-traded fund demand has shown resiliency. After $10.8 billion in withdrawals in November, taxable bond fund outflows were just $5.7 billion in December, Lipper said.

“They still do want yield, and I think they understand it’s not time to panic,” said Tom Roseen, Thomson Reuters Lipper’s head of research services. “If it’s slow and steady the rate increases can actually offset the losses we have.”

Roseen said investors still need the yields that bonds offer and which rise after a sell-off. Bond yields and prices move inversely.

Investment-grade corporate bond funds took in $2.2 billion during the week, while municipal bond funds, which are especially sensitive to interest rate moves, recorded $912 million in outflows, their eighth week of withdrawals.

Emerging-market debt funds attracted $65 million after seven straight weeks of withdrawals.

The following is a broad breakdown of the flows for the week, including ETFs (in $ billions):


Sector Flow Chg % Assets Assets Count

($blns) ($blns)

All Equity Funds 2.403 0.04 5,466.035 11,611

Domestic Equities 2.453 0.06 3,927.155 8,277

Non-Domestic Equities -0.050 -0.00 1,538.880 3,334

All Taxable Bond Funds 1.234 0.05 2,290.312 5,871

All Money Market Funds -9.029 -0.38 2,342.611 1,025

All Municipal Bond Funds -0.912 -0.26 354.709 1,386


(Reporting by Trevor Hunnicutt; Editing by Bernard Orr and Richard Chang)
Published at Thu, 05 Jan 2017 23:42:30 +0000

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Investment focus: Is this the ‘Great Rotation’? Some banks think so


by geralt from Pixabay

Investment focus: Is this the ‘Great Rotation’? Some banks think so

By Dhara Ranasinghe and Vikram Subhedar | LONDON

After a number of false starts since the term was first coined five years ago, the idea of a ‘Great Rotation’ out of bonds into stocks is again gaining traction.

Almost $2 trillion has been wiped off the value of global bonds since Donald Trump was elected as the next U.S. president on Nov. 8, sparking a reassessment of growth and inflation views. In contrast, U.S. stocks have hit record highs.

According to Bank of America Merrill Lynch, the week to Nov. 16 saw the biggest equity inflows in two years at $28 billion and the biggest bond outflows in 3-1/2 years at $18 billion — the widest weekly disparity between stock and bond flows ever.

Whether this marks the start of a ‘Great Rotation,’ a phrase first used by Bank of America in 2011, remains to be seen but there are two reasons why this time it could be the real thing.

For starters, say analysts, a tighter U.S. jobs market and signs of stronger economic growth suggest inflation risks are rising.

Second, for the first time since the financial crisis there is a shift toward fiscal expansion — highlighted by the economic policies favored by Trump and by Britain’s budget statement this week that unveiled a $29 billion fund for infrastructure projects.

That change implies higher borrowing by governments and another source of inflationary pressures that support a view that an era of ultra-low yielding bonds may be in the past.

The only caveat is that this notion of investors shifting their hundreds of billions invested in bonds into stocks as a three-decade bond bull run comes to an end, propelling equity markets higher, has had several false starts before.

“I’ve been asked this question many times before – about whether we’re seeing a great rotation,” said Luca Paolini, Pictet Asset Management’s chief strategist. “We now see some significant inflation risks that were non-existent before. This is what’s different.”

In Germany, signs of a pick-up in inflation pushed yields sharply higher from record lows between late April and June last year – only to fall back as data suggested the region continued to battle with deflationary pressures.

U.S. 10-year bond yields rose more than 100 basis points during the so-called “taper tantrum” of 2013 as investors positioned for a scaling back of U.S. monetary stimulus. They subsequently fell back too, hitting record lows earlier this year, helped by a perception that any Federal Reserve monetary tightening would be glacial to support growth.

A Fed rate hike next month, widely expected, would mark the first increase in a year.


But as inflation expectations are overhauled so are perceptions about the rate outlook – money markets are starting to price in one or more Federal Reserve rate hikes next year, a sea change from before the election when they priced in a less than 50 percent chance of a 2017 Fed hike.

It’s against this backdrop that early indicators of a rotation can be seen.

JPMorgan notes that over the past week, a record inflow into U.S. equity exchange traded funds (ETFs) was accompanied by a record outflow from bond ETFs.

Within equity markets a sharp rotation out of so-called “bond proxies” – dividend-paying sectors such as utilities, telecoms and healthcare which are favored by investors for their yield – and into more cyclical sectors such as banks, industrials and commodities-related sectors is already underway.

The fading allure of dividends could be a precursor to a broader asset-class switch out of bonds and into stocks, which are more geared to economic growth and an inflation pick-up.

This trend has taken hold across global equity markets. Basic resources and energy are now the best performing equity sectors within the MSCI all-country World indices .MIWD00000PUS, both up about a fifth this year. Healthcare, utilities and food and beverage stocks are the biggest laggards and the only three in the red for 2016.

“It’s too early to tell but this is the best chance I’ve seen in a long time,” said Michael Antonelli, an institutional sales trader at R W Baird & Co, referring to a great rotation.

“Money chases performance and it is thus and ever shall be so we need equity funds to start knocking the cover off the ball,” he added, alluding to an opportunity for equity funds to make strong gains.

One sign that a great rotation is taking hold is if investors continue to offload bonds on a large scale.

“We know in general that a lot of capital has gone into fixed income, so how investors react to this sell-off is really important,” said Michael Metcalfe, head of macro strategy at State Street Global Markets. “If they capitulate, they will drive the next leg of it clearly.”


Any rotation is likely to be driven by the United States, where bonds have seen some of the steepest selling in years. In Europe and Japan, still subdued inflation and ultra-loose monetary policy is expected to provide some support to bonds.

Rising political risks in the euro area such as in Italy also suggest demand for safe-haven German bonds remains firm, with two-year yields hitting record lows on Friday at minus 0.75 percent.

Long-term investors such as pension funds, hurt by an era of negative bond yields, are also likely to welcome any sell-off to lock in yields at higher levels.

“Against that you could have someone like a retail investor not wanting to own fixed income. So really the idea of a great rotation will depend on who that marginal buyer or seller of fixed income is,” said Nick Gartside, chief investment officer for fixed income at JP Morgan Asset Management.”

(Graphic by Nigel Stephenson; Editing by Toby Chopra)

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Published at Fri, 25 Nov 2016 14:22:02 +0000

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Rising rates test resolve of investors who piled into bonds


Rising rates test resolve of investors who piled into bonds


By Trevor Hunnicutt and Sam Forgione

Investors who piled into bond funds for safety will see red when they unfurl their current account statements this holiday season.

Retreating from stocks in 2016, fund investors plunged $194 billion in U.S.-based bond funds in the first three quarters this year, according to the Investment Company Institute, a trade group.

Yet interest rates have leapt in recent weeks, along with expectations of inflation under the new Donald Trump U.S. presidential administration, eating away at bond prices.

The benchmark 10-year Treasury bond’s yield is 2.35 percent, up from 1.86 percent on Election Day.

“Core” bond funds, where a fifth of U.S. fixed-income fund assets are held, are off 2.3 percent so far this quarter, according to fund research service Thomson Reuters Lipper. If that result holds, this will be the largest decline since 2013.

Other bond funds have fared worse, especially those with exposure to longer-term bonds and emerging markets.

“Investors, both institutional as well as individual, will begin to receive statements which show losses rather than gains,” said Steven Einhorn, vice-chairman of hedge fund Omega Advisors Inc.

Some investors see those results setting the stage for a rotation from bonds back to stocks.

And fixed-income fund managers are favoring bonds that act more like stocks. Those funds are revamping their portfolios, peeling away exposure to rate-sensitive government bonds and doubling down on higher-yielding corporate bonds, which are exposed to credit risks similar to stocks and typically move less in response to rate shocks.

“It’s a very precarious state you’re in: you’re earning a really low return and you have really high risk,” said Ellington Management Group LLC Chief Executive Michael Vranos at the Reuters Global Investment Outlook Summit in New York this week. “I don’t know who has the stomach for that risk when it starts to move against you.”

Investors are already starting to pull money out. U.S.-based taxable bond funds just posted their third straight week of withdrawals, with $5.9 billion pouring out during the seven days through Nov. 16. Municipal bond outflows of $3 billion during the week were the largest in more than three years, according to Lipper.



It is of course possible that demand will be strong for bonds even as investors start to see losses. Rising rates also mean bonds start offering more attractive yields to starving savers.

And portfolio managers, many of them hawking ostensibly safer alternative investments, have been predicting a great rotation out of bonds for years only to be humbled as rates tumbled lower.

“I’ve actually been blown away this year that you’ve had just this persistent demand in fixed income,” said Rick Rieder, BlackRock Inc’s chief investment officer of global fixed income.

“It’s been pretty amazing to me that with rates moving as low as they did that you didn’t see movement into the equity market, and it tells you that people are incredibly loyal to their bonds.”

That has not always been the case. Bond markets panicked over the Federal Reserve’s talk of removing life support from the economy in 2013, a “Taper Tantrum” that led to $59 billion in withdrawals from the funds that year, according to ICI.



As the bond market throws its “Trump Tantrum,” even more portfolio managers are rushing to credit to cushion the blow from rising rates.

Money managers said they remain bullish on U.S. high-yield corporate bonds, a riskier area of the bond market that tends to move in tandem with equities, even as the bonds have rallied more than 14 percent this year on a global reach for yield amid low-to-negative rates worldwide, according to Bloomberg Barclays index data.

Several investors said that the rate of defaults in the market was unlikely to accelerate next year, leading these investors to favor the riskier, lower-quality segment of the high-yield market.

“If a catalyst for the equity market is potentially corporate tax evolution (and) greater growth in the economy, the high-yield market should be in pretty good shape,” Rieder said.

Much of the rally in high-yield so far this year has been disproportionately in the higher-quality end of the market such as BB-rated bonds, while lower-quality single B- and triple C-rated bonds have largely missed out, said Dawn Fitzpatrick, global head of equities, multi-asset and the O’Connor hedge fund businesses at UBS Asset Management.

Those lower-quality issuers remained attractive as a result, Fitzpatrick said. She said high-yield bond coupons were more attractive than those on their safer investment-grade and sovereign counterparts, while the likely absence of a pickup in defaults would also benefit the high-yield market.

Low rates globally would continue to spur inflows into high-yield bonds, said Gregory Peters, senior investment officer at Prudential Fixed Income.

“I think high-yield still represents the best ‘carry’ globally,” Peters said in reference to the higher coupons an investor can collect in high-yield bonds.

(For more summit stories, see)

(For other news from Reuters Global Investment Outlook Summit, click here)

Follow Reuters Summits on Twitter @Reuters_Summits

(Reporting by Trevor Hunnicutt and Sam Forgione; Editing by Jennifer Ablan, Bernard Orr)

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Published at Sun, 20 Nov 2016 18:23:25 +0000

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Bond yields up, stocks sag on enhanced U.S. rate hike prospects


People are reflected in a board showing market indices in Tokyo July 28, 2015.REUTERS/Thomas Peter

Bond yields up, stocks sag on enhanced U.S. rate hike prospects

By Hilary Russ and Chuck Mikolajczak | NEW YORK

Wall Street recovered some losses on Friday but still closed lower, with U.S. stocks and the dollar falling after the Federal Bureau of Investigation said it would probe additional emails related to Democratic presidential candidate Hillary Clinton’s use of a personal email server while secretary of state.

The dollar slipped against major currencies, including the Euro and the yen, but rose to three-week highs against the Mexican peso.

The markets, which have been pricing in a likely Clinton win against Republican candidate Donald Trump, were initially spooked by news that could be an advantage to Trump.

Stocks recovered some ground, however, once investors digested the FBI announcement, said Stephen Massocca, chief investment officer, Wedbush Equity Management LLC in San Francisco.

“People calmed down and considered what it really meant, that in all likelihood it really isn’t going to impact the election,” he said.

The Dow Jones industrial average .DJI fell 8.49 points, or 0.05 percent, to 18,161.19, the S&P 500 .SPX lost 6.63 points, or 0.31 percent, to 2,126.41 and the Nasdaq Composite .IXIC dropped 25.87 points, or 0.5 percent, to 5,190.10.

The political uncertainty dented the U.S. dollar, which was down 0.56 percent against a basket of major currencies .DXY after earlier hitting an eight-day low of 98.242. The dollar index was set to post a weekly decline of about 0.4 percent.

The greenback fell about 0.7 percent against the yen to a session low of 104.49 yen JPY= after hitting a three-month high of 105.53 earlier.

The dollar jumped more than 1.3 percent, however, against the Mexican peso to a three-week high of 19.1002 pesos MXN= before paring gains. A Trump victory has been viewed as a key risk for the Mexican currency given Trump’s promises to clamp down on immigration and redraw trade relations with the country.

Oil prices settled below $50 to mark their biggest weekly loss in six weeks on concerns OPEC will not fully carry out a planned crude output cut, even as data showed U.S. oil drillers removed rigs from production for the first time since June.

Brent crude futures LCOc1 fell 76 cents, or 1.5 percent, to $49.71 a barrel, after earlier hitting a session low of $49.31.

U.S. West Texas Intermediate CLc1 crude fell $1.02, or 2 percent, to $48.70 a barrel. It hit a low of $48.42.

The latest investigation into Clinton’s emails also pushed U.S. Treasury two-year note yields US2YT=RR down from five-month peaks to trade flat. Yields on other short-dated U.S. notes were also lower on the day.

However, the yield on 10-year Treasury notes US10YT=RR rose slightly to 1.848 percent. Earlier, 10-year yields reached five-month highs of 1.879 percent.

Stronger-than-expected growth in the world’s biggest economy boosted bets on an imminent U.S. interest rate increase and had earlier sent government bond yields broadly higher.

An estimate of U.S. second-quarter gross domestic product showed annualized economic growth of 2.9 percent, the fastest rate in two years. But the boost came largely from a recovery in inventories and a jump in agricultural exports after poor soy harvests in Argentina and Brazil this year benefited sales by American exporters.

Meanwhile, business investment in equipment contracted for a fourth straight quarter and personal consumption growth slowed to 2.1 percent from 4.3 percent.

Treasury yields were also supported by surging British gilt and German bund yields DE10YT=TWEB. Bond yields have risen recently amid concerns the ultra-easy policies of major central banks could have their limits and may not be continued indefinitely.

Europe’s index of leading 300 shares .FTEU3 closed down 0.35 percent; Germany’s DAX slipped by 0.19 percent .GDAXI and the STOXX 600 fell 0.27 percent.

(Additional reporting Gertrude Chavez-Dreyfuss, Sam Forgione and Ethan Lou in New York; Editing by Dan Grebler and Meredith Mazzilli)

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Published at Fri, 28 Oct 2016 06:08:28 +0000

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New Jersey, Alaska deals will lead big week in muni supply

Photo bykst from Pixabay

New Jersey, Alaska deals will lead big week in muni supply


By Nick Brown

U.S. municipal market supply will likely be among the highest in a decade when an estimated $16.7 billion of bonds and notes goes up for sale next week, lead by deals from New Jersey and Alaska.


With $16.5 billion in expected bond sales and $213 million in notes, according to Thomson Reuters estimates on Friday, the week would be one of the 10 biggest for supply in the last 10 years. Looking at just bonds, it would be the biggest since December 2006.

New Jersey will sell $2.76 billion of highway reimbursement notes through Bank of America Merrill Lynch, and Alaska plans to offer $2.35 billion of taxable pension obligation bonds via Citigroup, with both deals set to price on Wednesday.


Muni supply is surging lately. This week, an estimated $15.9 billion of bonds and notes hit the market.

“We expect the issuance pipeline to remain robust over the next few weeks as some issuers look to place deals prior to the November general election and a potential (Federal Reserve) rate hike in December,” Barclays analysts said in a Friday report.


Barclays said the weakness in the muni market “is technical in nature, and as soon as supply subsides, the market should regain its footing.”

As this week’s big supply hits, U.S. municipal bond funds’ net flows turned negative for the first time since the end of September 2015, according to Lipper, a unit of Thomson Reuters Corp. Funds reported nearly $136 million of net outflows in the week ended Oct. 19.


Next week’s biggest competitive offering comes from Maryland, whose department of transportation will sell more than $690 million of new and refunded bonds in a two-part deal on Wednesday.

(Reporting by Nick Brown and Karen Pierog; Editing by Lisa Shumaker)

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Published at Fri, 21 Oct 2016 19:20:42 +0000

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TREASURIES-U.S. bonds little changed on supply hedging


TREASURIES-U.S. bonds little changed on supply hedging

* Saudi Arabia launches $17.5 billion global bond deal
    * U.S. housing starts fall to 1-1/2 year low in September
    * Traders await clues from ECB on bond purchase program

 (New throughout, updates prices and market activity, adds
comment from strategist)
    By Richard Leong
    NEW YORK, Oct 19 U.S. Treasury yields were
little changed on Wednesday as dealers bought and sold
government bonds to hedge the bonds they underwrite, which was
led by Saudi Arabia's first-ever global bond issue.
    Saudi's $17.5 billion multi-part debt offering drew heavy
investor demand as the world's top oil exporter sought to borrow
at historic low yields. 
    Bond dealers typically sell Treasuries to hedge against an
issue they underwrite and then buy them back after it is sold.
    "It's a huge deal. There's some rate-lock selling," said
Mary Ann Hurley, vice president of fixed income with D.A.
Davidson in Seattle. "As the Saudi deal gets put away, you could
see some reversal of that rate-lock selling."
    Benchmark U.S. 10-year Treasury notes were last
up 1/32 in price for a yield of 1.743 percent, down half a basis
point from late on Tuesday. The 10-year yield remained below a
four-month peak of 1.841 percent reached on Monday.
    Two-year yield was flat at 0.803 percent, and the 30-year
yield was unchanged at 2.512 percent.  
    Bond yields swung a bit after data showed a 38 percent
plunge in U.S. apartment construction in September, knocking
overall home building activity to its weakest level in 1-1/2
    "That number is downright terrible," said Stan Shipley, a
strategist at Evercore ISI in New York.
    Some analysts noted that the report did have a bright spot:
domestic single-family home construction rose 8 percent to its
strongest level in seven months.
    Meanwhile, investors awaited possible clues on the European
Central Bank's thinking on its 1 trillion-plus euro bond
purchase program which may conclude as early as March 2017. 
    Traders have been speculating whether the ECB, which will
hold a policy meeting on Thursday, would consider paring its
quantitative easing as Europe keeps struggling with weak growth
and faces Britain's exit from the European Union.
    "The market has come to realize central banks have pretty
much done all they can to help markets," D.A. Davidson's Hurley
said. "Still the ECB will maintain its accommodative stance."
  October 19 Wednesday 1:39PM New York / 1739 GMT
 US T BONDS DEC6               164-14/32    0-5/32    
 10YR TNotes DEC6              130-88/256   0-12/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.3275       0.3323    -0.016
 Six-month bills               0.4625       0.47      -0.010
 Two-year note                 99-230/256   0.8027    -0.008
 Three-year note               100-34/256   0.9548    -0.008
 Five-year note                99-132/256   1.2262    -0.010
 Seven-year note               99           1.5273    -0.007
 10-year note                  97-204/256   1.745     -0.003
 30-year bond                  94-140/256   2.5108    -0.001
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        22.75         0.25    
 U.S. 3-year dollar swap        14.25         0.25    
 U.S. 5-year dollar swap         1.75         0.25    
 U.S. 10-year dollar swap      -17.25        -0.25    
 U.S. 30-year dollar swap      -57.25        -0.25    
 (Reporting by Richard Leong; Editing by Chizu Nomiyama and
David Gregorio)

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Published at Wed, 19 Oct 2016 17:52:34 +0000

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Bond yields grind to highest since June, stocks wince

Photo deedster from Pixabay

Bond yields grind to highest since June, stocks wince


By Marc Jones

U.S. and European government bond yields, the main driver of global borrowing costs, hit their highest since June on Monday as questions mounted about how the world’s big central banks could react to a sudden bout of inflation.


The U.S. dollar .DXY hovered near a seven-month high [/FRX] while European and Asian stocks .MIWD00000PUS started the week firmly in the red, with Wall Street set to dip when it resumes [.N] amid a flurry of company earnings.

But most action was in bonds, with 10-year U.S. Treasury yields US10YT=RR pushing past 1.8 percent and German Bund yields DE10YT=TWEB at their highest in four months ahead of a European Central Bank meeting on Thursday. Brexit worries meanwhile ensured another torrid session for UK gilts. GB10YT=RR

All the moves came amid signs that inflation is finally starting to wake from its slumber and that top central banks may let inflation “run hot” as U.S. Federal Reserve Chair Janet Yellen suggested on Friday.

“We have the two-month window where there will be a lot of uncertainty about what the European Central Bank will do, and we had a poor gilt opening this morning and that has spooked the market,” said Mizuho interest rate strategist Antoine Bouvet.

“We expected another 20 basis point rise in Bund yields by mid-November.”

Elsewhere in markets, the dollar .DXY took a breather after hitting a seven-month high against a basket of six major currencies and following its largest weekly rise in more than seven months last week.

That gave some respite to the euro EUR= and yen, which had both touched 2-1/2-month lows of $1.0964 and 104.22 yen per dollar respectively, although not for the Brexit-battered pound GBP= which slumped back to $1.2140. [GBP/]

Media reports of disagreements between the finance minister and his cabinet colleagues over the terms of Britain’s exit from the European Union were the latest cause of strife.

The Daily Telegraph newspaper said Philip Hammond could quit his post after being excluded from government meetings because he had criticised the “hard Brexit” stance of Prime Minister Theresa May.


Although the Treasury denied that Hammond would step down and May’s spokeswoman said “differing views” on the Brexit route would be heard, the reports did little to instil confidence in the pound, traders said.



Wall Street was digesting earnings from Bank of America (BAC.N), the second-largest U.S. bank by assets, which reported on its first increase in profit in three quarters, while also awaiting U.S. industrial output data. [.N]

Other data due this week includes U.S. and UK consumer prices and UK producer prices on Tuesday, and Chinese third-quarter gross domestic product on Wednesday. ECONG7


The European Central Bank will publish bank lending figures on Tuesday and hold a policy meeting on Thursday, while euro zone consumer confidence data for October is due on Friday.

Emerging Asian currencies lost ground on Monday after the comments by Yellen, which spurred investors to cut bond holdings in the region. [EMRG/FRX]

The Chinese yuan CNY=CFXS also weighed, having dropped to its weakest since September 2010 as the central bank in Beijing set its official guidance rate CNY=PBOC lower again.

China’s economy probably grew 6.7 percent in the third quarter from a year earlier, the same pace as the previous quarter, as increased government spending and a property boom offset stubbornly weak exports, according to a Reuters poll.

But analysts are increasingly worried that China’s growth is becoming too reliant on government spending, ballooning debt levels and a housing market that is showing signs of overheating.


MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS had ended down 0.5 percent, with Hong Kong’s Hang Seng .HSI hitting 1-1/2-month lows, though the weaker yen helped Japan’s Nikkei .N225 close up 0.3 percent

Safe-haven gold XAU= also edged up as buyers began to resurface after a 6 percent fall over the last few weeks. [GOL/]

“Markets are reacting to the possibility that the Fed might join the Bank of Japan in conducting policy to steepen the yield curve,” Ric Spooner, chief market analyst at CMC Markets in Sydney, wrote in a note.

“In the Fed’s case, this might amount to running the gauntlet of higher inflation with a very slow pace of monetary tightening.”

Oil prices, which have risen for four straight weeks, have helped drive the pickup in inflation globally. [O/R]

Brent crude futures LCOc1 stood a fraction higher at $52.13 in European trade, with U.S. crude futures CLc1 at $50.45 per barrel. They were capped by a rising rig count in the United States, a strong dollar and record OPEC output.

Some market players are wary of a possible hit to risk appetite after Iraq’s Prime Minister Haider al-Abadi announced the start of an offensive to retake the Iraqi city of Mosul from Islamic State.

(Editing by Catherine Evans)

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Published at Mon, 17 Oct 2016 13:01:31 +0000

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BRIEF-Moody’s assigns ‘AA1’ to $700 million of Maryland’s consolidated transportation bonds; outlook stable

By Couleur from Pixabay

BRIEF-Moody’s assigns ‘AA1’ to $700 million of Maryland’s consolidated transportation bonds; outlook stable

Oct 7 Moody’s Rating Service

* Moody’s assigns aa1 to $700 million of Maryland’s
consolidated transportation bonds; outlook stable

Source text for Eikon: []


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Published at Fri, 07 Oct 2016 17:38:15 +0000

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Venezuela PDVSA says bond swap legal

By PIRO4D from Pixabay

Venezuela PDVSA says bond swap legal

Oct 7 Venezuela’s state oil company
PDVSA said on Friday its ongoing bond swap was
“perfectly legal,” hitting back at subsidiaries of U.S. oil
company ConocoPhillips that sued it this week saying the
operation was fraudulent.


The Caracas-based company added in a statement that planned
operations would proceed without interference.



(Reporting by Alexandra Ulmer; Editing by Richard Chang)

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Published at Fri, 07 Oct 2016 17:12:56 +0000

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