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Sentiment in the credit market was lifted by encouraging economic data last week, but volume was low ahead of the holidays. Fixed-income driven portfolios (such as MyPlanIQ’s Momentum Bond Fund) started to stabilize in the second half of this year due to improving trends.

We make the following observations about last week's development:

  • High-yield bonds (JNK) remained at the top spot thanks to shrinking risk premiums over government debt.
  • International Inflation-Protected Bonds (WPI) continued to do well as inflation remains as a major concern in many developing countries.
  • Investment-grade bonds (LQD) had a very thin trading volume last week, but investment-grade market has had a good run in 2010 on improving yields and corporate credit conditions. The trend is likely continue into 2011 given corporate earnings are expected to start stay strong.
  • Emerging Market Debt (PCY) strengthened as growth is expected stay strong in emerging economies. Anchoring inflation expectation remains as a challenge as capital flow may put further inflationary pressures in these economies. Monetary policy and interest rate changes will be in focus in the near term in China and Brazil. This may cast a cloud over the equity markets.
  • All medium to long-term U.S. government securities’ yields (TLH) (TLT) rose. This is expected as improving consumer spending data bolstered speculation that the economic recovery is gaining traction.
  • Following the recent trend we have seen in the municipal bond market, the outlook for munis (MUB) (CMF) (NYF) remains tepid – states' fiscal problems may worsen in 2011 and put pressure on the Federal government to bail out struggling states to avoid defaults.

Assets Class

Symbols

12/24
Trend
Score

12/17
Trend
Score

Direction

High Yield

JNK

4.85%

3.86%

^

International Inflation Protected

WIP

3.37%

2.47%

^

Emerging Mkt Bonds

PCY

1.81%

1.04%

^

Long Term Credit

LQD

1.46%

1.33%

^

International Treasury

BWX

0.99%

0.77%

^

Intermediate Term Credit

CIU

0.72%

0.79%

v

Inflation Protected

TIP

0.65%

1.09%

v

Short Term Credit

CSJ

0.36%

0.57%

v

US Total Bond

BND

0.18%

0.06%

^

Short Term Treasury

SHY

0.17%

0.29%

v

Treasury Bills

SHV

0.01%

0.02%

v

Intermediate Treasury

IEF

-0.21%

0.09%

v

10-20Year Treasury

TLH

-1.0%

-0.73%

v

MBS Bond

MBB

-1.29%

-1.96%

^

20+ Year Treasury

TLT

-1.93%

-2.07%

^

National Muni

MUB

-2.78%

-2.01%

v

New York Muni

NYF

-2.97%

-1.43%

v

California Muni

CMF

-4.03%

-3.39%

v


(Click to enlarge)

(Click to enlarge)

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Bond ETFs Boosted by Improving Data, Muni Bonds Still a Problem