IBD Special Report:
Mutual Fund Monthly
Two different groups of taxable bond investors showed up in
November. One group poured money into Treasuries.
Treasury funds' 0.82% gain on average made them one of
taxables' leading groups last month, according to preliminary
Lipper Inc. data.
Those investors exited riskier categories of fixed income
after the elections. "They sold-off risk largely because they
began to focus on the fiscal cliff," said Rick Raczkowski,
co-manager of $1.6 billion Loomis Sayles Core Plus Bond Fund
The second group of taxable investors focused on data showing
steady if slow GDP growth in the U.S., Raczkowski said.
Abroad, they felt more confident about economic conditions in
China. "For them, the fear of a hard landing in China has been
eased by better data," Raczkowski said. "That will help emerging
This second group drove emerging markets bond funds up 1.13%
in November. High-yield funds spurted ahead 0.71%.
The yield curve steepened slightly last month. The yield on
two-year notes slipped 5 basis points to 0.25% while the yield on
30-year bonds slipped 4 points to 2.81%.
Raczkowski sees the fiscal cliff shaving 1% to 1.5% from 2013
GDP growth."More than that will hurt the risk market and help
Treasuries," he said. If the cliff's impact is within the range
he expects, he will favor credit-sensitive debt, with a slight
overweight to investment grade debt. He will also add slightly to
his emerging markets and other non-U.S. debt holdings.
And he is cautious about firms issuing debt or boosting
dividends. "Those are negative for their credit quality," he
He bought a 10-year Philippine sovereign bond on Nov. 8, with
a coupon of 3.9%, rated Ba1, just below investment grade, by
Moody's. Since buying it, its November total return was 2.29% vs.
the 0.19% for similarly-dated U.S. Treasury.
"The Philippines' GDP growth is faster than the U.S.', with
manageable inflation, a good fiscal situation and is denominated
in their peso," Raczkowski said.
Tax-exempt funds jumped last month. Overall muni funds rose
Their strength was due in part to strong inflow despite
year-to-date new issuance that is about 40% above last year in
the same period, said Geoffrey Schechter, who runs or co-manages
five MFS funds with $9.7 billion in total assets.
Much of the new issuance is from entities taking advantage of
low rates to refinance debt.
The election fueled inflow as investors positioned themselves
for expected higher personal income tax rates next year.
Investors also saw Obama's reelection as a sign that the next
chairman of the Federal Reserve would continue recent policies,
which have helped bond investors.
But in the short term Schechter cautioned that buying
traditionally slows during the holidays. Then buying picks up
when investors roll January coupon payments into new
Schechter owned a Beverly Hills, Calif., unified school
district, zero-coupon noncallable bond due Aug. 1, 2033, rated
Aa1 by Moody's.
With its price soaring to 47.09 from 42.49, its November total
return was 10.82% vs. 2.49% for Barclays Long Bond Index.
California voters passed a school funding measure, supporting