Bonds 04 (Jul 15 - Aug 17)

[winston]

Why the junk bond selloff is getting very scary

High-yield bonds have led previous big reversals in S&P 500

by Tomi Kilgore

Source: MarketWatch:

http://www.marketwatch.com/story/why-th ... 2015-12-11

[winston]

Knock-on effect in junk bonds

Martin Whitman is liquidating its high- yield Third Avenue Focused Credit bonds and blocking off investors from redeeming them.

It could be taken as a stark illustration of the severity of the slump in junk bonds in recent months even if the move exceeds market expectations. For the Third Avenue fund is worth US$789 million (HK$6.1 billion).

According to Morningstar, data from June 2014 shows that high-yield assets held by US mutual funds reached US$305 billion, three times that of 2009. But redemptions came to US$3.3 billion in November, the most since June. So Third Avenue may be the tip of an iceberg.

The trigger has been falling oil prices. Energy firms have reduced dividends, while some have cut them altogether.

That's stoked up questions about whether junk-bond companies can pay debts, so bond prices have kept falling. All 30 large high-yield bond funds tracked by Morningstar had losses this year, reflecting risk in this market.

As for Third Avenue, it's believed the ferment will continue for now, as some hedge fund traders are short selling. Third Avenue will face redemptions and there could be a domino effect.

Investors will anyway be wondering about various funds and matters such as redemptions. So it's likely some will call it quits at year's ends, resulting in losses and reductions of capital income tax expenses and meaning a lot of pressure for many funds.

These events will surely make the US Federal Reserve move cautiously in raising interest rates. For one result of a hike in rates will be increased stress in the bond market. If matters move too rapidly there's a risk of a bursting of a bubble.

So the Fed meeting this week is of vital concern to the bond market and the wider financial market.

Source: Andrew Wong Wai-hong, The Standard

[winston]

Bonds (10 year): 2.13% versus 2.23%.

After trading back and forth session to session, bonds blast higher, gapping over the 200 day SMA and the early December high.

Not much fear of the Fed.

Historical: 2.23% versus 2.21% versus 2.23%

Source: Investment House

[winston]

Goldman: Third Avenue 99th Percentile Basket Case, But Who Next?

By Shuli Ren

The news that Third Avenue Focused Credit Fund (TFCVX) is closing and investors won’t get their money back for at least a year has sent ripples across the asset management space and may propel large redemption in domestic high-yield funds and emerging markets bond funds.

Goldman Sachs chimed in this morning, saying the Third Avenue fund is an idiosyncratic case but does point to the big picture.

Since 2009, retail money has poured about $100 billion into high-yield funds and the “redemptions are just starting to pick up.”

Source: Barron's Asia

http://blogs.barrons.com/asiastocks/201 ... -who-next/

[winston]

Inverse Bond ETFs to Hedge Growing Risk in Fixed-Income Market

June 1, 2015

The ProShares Short High Yield ETF (SJB) takes the inverse -1x or -100% daily performance of the Markit iBoxx $ Liquid High Yield Index.

The ProShares Short Investment Grade Corporate ETF (IGS) tracks the -1x or -100% daily performance of the Markit iBoxx $ Liquid Investment Grade Index.

Source: ETF Trends

http://finance.yahoo.com/news/inverse-b ... 34987.html

[winston]

Junk Bond Crisis or Opportunity? by Sean Brodrick

[quote]There are 35 U.S.-based high-yield ETFs with $43 billion under management. That's way up from three ETFs with $1.3 billion in 2008.

The total amount of money in junk bond mutual funds was recently as high as $326 billion, up from $126 billion in 2008.

Now for the really bad news. There is the potential for this crisis to get much worse.

There are currently $27.2 billion in mutual fund assets that have suffered peak-to-valley losses over the last year greater than 10%. That's according to Yahoo Finance data. And that amount is 35 times greater than the size of the Third Avenue Fund.

Amazingly, Third Avenue, which lost 34.5% over the last year before it went belly-up, is not the worst fund on Yahoo's list of bad bond funds.

The two worst losers both belong to Credit Suisse. The Credit Suisse Emerging Market Fund Advisor (WPEAX) lost 35.1% over the same time period. And the Credit Suisse Commodity Access Fund (CRCCX) lost 35.2%.

Waiting on Commodity Prices

There's that word again: commodities. If commodity prices rally in 2016, this crisis could go away as quickly as it started.

The problem is no one expects commodity prices to rally in the first half of 2016.

Emerging Market Risk

Here's the thing: Corporate debt in emerging markets has more than quadrupled in the last decade.

In fact, the 15 biggest emerging market bond funds took in a combined $65.7 billion in net inflows between 2009 and 2014. That's according to fund tracker Morningstar. Now, those funds are seeing outflows. Their net fund outflows through November totaled $4.9 billion. That's before the current crisis hit.

In the past month, global emerging market bonds saw their values fall by about 2%. That's a big move in the bond markets.

So there's the potential for a debt-default cascade in emerging markets as well.

Now that I've scared you, let me leave you with this ray of hope.

Wall Street Isn't Pricing in Worst-Case Scenarios

For what it's worth, Wall Street is not panicking. Sure, bond default rates are rising. The trailing 12-month default rate rose to 2.8% in November. That's the highest level in three years. Standard & Poor's expects the rate to hit 3.3% by September 2016.

Let's say it's a bit worse. A 4.5% default rate would mean $66 billion worth of bonds would default. That would be below the record $119 billion posted in 2009.

Source: The Non-Dollar Report

[winston]

Bonds (10 year): 2.19% versus 2.24%.

Gapped back over the 200 day SMA, as bonds cannot make up their minds.

The yield curve is flattening still, something not supposed to happen in a strong economy with the Fed hiking.

Instead it looks as if bonds are signaling concern about the economy's future.

Source: Investment House

[winston]

Sorry, Barron’s… The High Yield Bond Rout Is Just Beginning

by MICHAEL LEWITT

WHAT'S GOING UP:
Junk bond fund yields are 10%+ and looking very attractive...

WHAT'S GOING DOWN:
But this market has not seen a bottom.

HOW TO PROFIT:
Be realistic about problems in the high-yield market:

1. It's very hard to determine the real intrinsic value of the bonds (or funds).

2. The default cycle is likely to pick up considerably in 2016, impairing dividend-paying abilities.

3. Now that the Fed is tightening and investors are growing nervous about risk, that is likely to be bad for high yield bond funds.

Source: Sure Money

http://suremoneyinvestor.com/2015/12/so ... beginning/

[winston]

Bonds are boring, but should you own them?

By Jared Blikre

Source: Yahoo Finance

http://finance.yahoo.com/news/bonds-are ... 38219.html

[winston]

Biggest Investors Say Beware the Bond Market as Fed Tightens

By Wes Goodman

Source: Bloomberg

http://finance.yahoo.com/news/biggest-i ... 47041.html