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| BondsOnline.com: instant access to and extensive coverage of over 3.5 million stocks, bonds, indexes and other securities covering major and emerging markets and exchanges across the globe. |
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| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
|
0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Bondholders Beware |
HEMSCOTT - April 19, 2011 - by Dave Sekera CFA
BOND STRATEGIST: One of the dominant themes this year will be the focus on providing shareholder value, even if it comes at the detriment of bondholders
US Bond Market
Last week was relatively quiet in the US bond market, as secondary trading was muted and new issue volume declined as the US entered earnings season. The Morningstar Corporate Bond Index was unchanged for the week at +136 over Treasuries.
Investors complained that they had a hard time sourcing bonds, as demand from open-end funds--which are flush with cash from inflows--outstripped new issue supply and dealer desks were low on inventory. Even in the face of this demand, investors are experiencing a little sticker shock and were unwilling to push credit even tighter. Spreads remain at the tightest levels since the credit crisis.
March fund flows for US-listed fixed-income OEICs were generally very strong, with fixed-income funds invested in non-US debt experiencing the greatest inflows and investment-grade and high-yield funds benefiting from strong inflows.
We maintain our opinion that the economic environment in the US remains conducive for corporate credit spreads to continue to tighten over the course of the year, albeit at a slower pace. Over the past year, improving corporate earnings and economic fundamentals underpinning the strength in corporate bonds have outweighed what seems like a continual barrage of financial and environmental crises. The ongoing recovery has led issuers to generate strong free cash flows, increase liquidity, and strengthen balance sheets. Bob Johnson, Morningstar's director of economic analysis, believes real GDP growth for 2011 will be around 3.5% (although weighted toward the back half of the year), and those same factors should support continued tightening in corporate credit spreads.
However, as we highlighted back in December in our 2011 Credit Market Outlook, one of the dominant themes this year will be the focus on providing shareholder value, even if it comes at the detriment of bondholders. Companies across a wide swath of sectors are directing an increasing amount of cash flow toward dividend hikes, share buybacks, and acquisitions. Adding to the credit risk for bondholders, both shareholder activism and private equity leveraged buyouts are picking up as well. We are beginning to see additional evidence of this theme gaining traction. This will be an ongoing headwind for the corporate bond universe this year and will result in increasing importance in security selection. As part of our selection process to identify bond recommendations, not only do we look for issues that are cheap on either an absolute or relative value basis, but we also analyse downside scenarios to exclude issuers that we think have a high probability of being subject to a LBO, or those with management teams that we think might be willing to heighten credit risk in the pursuit of short-term shareholder gains.
Another trend we have previously highlighted is that as credit spreads tighten, the financial sector will outperform. It is currently the cheapest sector relative to its credit ratings, and investors have become increasingly confident that bank balance sheets are on the mend. (Our financial team agrees, as Morningstar's bank credit metrics continue to improve.) In fact, last week the spread between the financial sector and industrial sector in the Morningstar Corporate Bond Index narrowed back to the tightest level over the past year.
For the complete article.
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| BondsOnline Advisor |
Income Security Recommendation January 2013 Issue.
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