ETF Outlook on Emerging Market Debt and Muni Bond Turbulence in 2011
12/21/2010 0 comments
Last week, Emerging Market Bonds (PCY), T-Bills (SHV), MBS Bonds (MBB), and High Yields (JNK) were under selling pressure. The drop in emerging-markets debt came as a surprise as it gave up ground gained early in the week after the Fed’s reaffirmation on QE2. For more information, please visit MyPlanIQ 360 Degree Market View.
We make the following observations about last week's development:
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Emerging Market Debt (PCY) weakened. Close attention is paid by investors to the inflationary pressures emerging markets are facing. Inflation has been rising rapidly in some emerging economies such as China. Monetary policy and interest rate changes will be in focus in the near term and remain as a catalyst for the market.
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International Inflation Protected Bond fund (WIP) now takes the second spot in our following trend table with a gain of 0.5% last week
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All medium-to-long-term U.S. government securities (TLH, TLT) gained ground last week. The flattening yield curve signals that the market expects no additional round of quantitative easing and usually foreshadows the end of Federal Reserve’s simulative rates cutting.
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The outlook for the municipal bond market (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. New Jersey governor Chris Christie commented on the dire fiscal problems many states face on 60 minutes that “the day of reckoning has arrived. That's it. And it's gonna arrive everywhere.”
Assets Class | Symbols | 12/17 Trend Score | 12/10 Trend Score | Direction |
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High Yield | JNK | 3.86% | 4.33% | v |
International Inflation Protected | WIP | 2.47% | 2.12% | ^ |
Long Term Credit | LQD | 1.33% | 0.83% | ^ |
Inflation Protected | TIP | 1.09% | -0.3% | ^ |
Emerging Mkt Bonds | PCY | 1.04% | 2.82% | v |
Intermediate Term Credit | CIU | 0.79% | 0.43% | ^ |
International Treasury | BWX | 0.77% | 0.54% | ^ |
Short Term Credit | CSJ | 0.57% | 0.53% | ^ |
Short Term Treasury | SHY | 0.29% | 0.21% | ^ |
Intermediate Treasury | IEF | 0.09% | -0.73% | ^ |
US Total Bond | BND | 0.06% | -0.19% | ^ |
Treasury Bills | SHV | 0.02% | 0.03% | v |
10-20Year Treasury | TLH | -0.73% | -1.28% | ^ |
New York Muni | NYF | -1.43% | -2.91% | ^ |
MBS Bond | MBB | -1.96% | -1.71% | v |
National Muni | MUB | -2.01% | -3.5% | ^ |
20+ Year Treasury | TLT | -2.07% | -2.28% | ^ |
California Muni | CMF | -3.39% | -3.93% | ^ |
In conclusion, investors should remain cautious of municipal bonds. Default risk remains high and yields are poised to jump higher as the end of the federally subsidized Build America Bonds program puts more financial pressure on debt-riddled states and cities.
labels:investment,
Symbols:AGG,BND,BWX,CIU,CMF,CSJ,EMB,HYG,IEF,JNK,LQD,MBB,MUB,NYF,PCY,PHB,SHV,SHY,TIP,TLH,TLT,WIP,
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