| 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
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| More |
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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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LOOKING AHEAD: Investing Ideas and Analysis for the Week of September 8, 2009 |
BUYING THE RECOVERY, GRUDGINGLY, From David Kelly, chief market strategist, JPMorgan Funds
This first week after Labor Day is, in theory, a quiet one for financial markets. The kids are back in school, the office parking lots are full again and those Americans who still have a job will settle down to do it. By contrast, news on the economy and markets should be light.
Overall, on the economy it is important not to miss the big picture. Each passing week makes it more likely that third-quarter GDP growth will come in somewhere between 2.5% and 4%, which would make this the fastest-growing quarter in two years, and increase the odds that the recession ended over the summer.
The stock market appears to be buying into the recovery story, albeit grudgingly, with the S&P500 rising in six of the last 8 weeks. The same generally holds true of the corporate and municipal bond markets, where credit spreads have narrowed sharply over the course of this year. However, the Treasury market remains anomalous, with 10-year nominal bonds yielding less than 3.5% and 10-year TIPs providing a real yield of just 1.7%. Given the volume of debt which the government will have to market to the public over the next decade, along with prospects for a moderate economic revival, these Treasury rates seem extremely low.
On balance, the recovery trade should continue to gain momentum in the week ahead. However, there remain plenty of fundamental concerns and it will be lost on no one that these early days of September contained the two greatest shocks of the last decade, 9/11 and the collapse of Lehman Brothers. Logically, that should have no bearing on the behavior of markets. But whoever said that markets are always logical?
FOR TAX-FREE INCOME, TRY CALIFORNIA RANS, From Marilyn Cohen, CEO, Envision Capital Management
Municipal bond investors are familiar with RANs—Revenue Anticipation Notes. RANs are short-term, tax-free securities issued on the promise that collection of future tax receipts will repay these debt obligations. The maximum maturity is one year. Many states, cities and countries use them as a short-term cash management tool.
Purchase RANs from an issuer in your state and you receive the double tax exemption. Purchase RANs issued by another state and you’ll be subject to your home state tax. California, the financial basket case of the nation, is finally trying to get its budget in order. The state will be coming to market September 21-23 with approximately $8 billion to $10 billion of RANs.
There will be a two day retail order period: September 21st and 22nd. For investors sitting in tax-free or taxable money market funds and for investors scouring the universe for certificates of deposit, these California RANs are your best buy.
Although the details have yet to be disclosed, the California RANs will mature before June 30, 2010. Yield talk is 2% to 3%. I think 2% or greater is a steal, a bargain and a gift. You won’t find a taxable or non-taxable short-term higher yield anywhere. These short-term bonds will carry an investment grade rating. I truly believe your money will be safe and will be repaid on time.
Our last two newsletters vented our outrage at the low yields and high fees charged by both the taxable and tax-exempt money market funds. Now is your chance to take revenge and juice up your returns without any management fees.
To take advantage of these yield-y RANs you are best off buying from one of the main underwriters. JPMorgan is the book runner and Senior Manager while Citigroup and EJ De La Rosa will be co-senior managers. There are 34 other banks named as part of the RAN team.
COMING: A HIGH-YIELD CORRECTION, From Christopher R. Wolf, managing partner and co-chief investment officer, Cogo Wolf Asset Management
The struggle between the bears and the bulls is manifesting itself in the record gulf separating economists—who, being prudent or dismal scientists, predict a slow recovery and GDP growth—and the Wall Street analysts, who are either in touch with the financial markets or overly optimistic, take your pick. The gulf between corporate profit growth and GDP growth is nearly eleven-fold, the highest in over 60 years.
The prospects for high-yield bonds as attractive investments rest in the middle of this gulf and will be dependent on whether default rates and recovery rates rise or fall over the next twelve months. The bearish argument is that recovery rates have fallen from 40% down to 20%, according to Moody’s data. Combine that with an overheated market and there is a reasonable case that default rates will rise, a flight to investment grade bonds will accelerate and prices will come down.
High-yield bonds assumed the unfortunate nature of exotic equities, falling between 10% to 20% during the September-October 2008 and January-February 2009 market falls. Under the bearish scenario, the most obvious high-yield shelters would be domestic energy bonds, metal and mining companies linked to the continuing vigorous growth of the emerging markets. We fall into the camp that there will be a significant near-term market correction which will again pull-down high-yield bond prices. We would be buyers after such correction.
The high-yield bonds of developing nations are particularly attractive but require caution. Sales have surged due to the global re-pricing of risk. While the default rate for such securities has risen eight-fold from 2007, the pace of defaults has been moderating since April, sustaining investor demand and pushing borrowing costs down further. Current developing nation spreads over Treasuries are 4.37 percentage points above the 7.23 point average for the six years ending 2007. With interest rates at 13% to 14%, bond sales are expected to taper off, removing an attractive opportunity for investors.
PREPARE FOR MORE CORRECTION, From Bob Doll, vice chairman and global chief investment officer of equities, BlackRock
From an equity markets perspective, there has been some question about how attractive stocks are from a valuations perspective. On the one hand, it would be reasonable to expect valuations to be below average given the severity of the downturn and the high degree of uncertainty over the outlook. On the other hand, however, extremely low levels of interest rates and inflation provide support in the other direction. On balance, we believe that equities are fairly valued and that earnings are likely to be the driver of market gains going forward. From a long-term perspective, we think US stocks have the potential to deliver compound returns of somewhere around the 6% to 8% level over the next several years.
The rally that has been in place since March has been driven by a combination of increased optimism about the state of the economy and highly accommodative monetary policy. Given that backdrop, and our belief the recession is ending, it appears the path of least resistance for stocks should continue to be up. Nevertheless, investors should be prepared for some additional near-term corrective action. Stocks are no longer as cheap as they were several months ago, conditions may be overbought and there is still a great deal of uncertainty over the outlook. On the upside, there is still a great deal of cash on the sidelines looking to enter the markets, which could provide another jolt to returns. On balance, investors should expect high levels of uncertainty and volatility to continue.
To conclude, we can look to the well known quote from Sir John Templeton:
"Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria." In our minds, while the period of greatest pessimism is clearly behind us, there remains a large dose of skepticism in the markets. Often, these are some of the best periods for equities, and we hope things are not different this time.
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| Partner Market Place |
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| Stuff to look at |
Yield and Income Newsletter: A must have for income investors. subscribe NOW
S&P Commentary and Newsletters: S&P
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| BondsOnline Advisor |
Income Security Recommendation January 2013 Issue.
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