I dont understand why Bernanke is determined to bail out the housing industry at any cost, all other investors be damned. I guess maybe the housing industry is all the US has left, or more likely the mortgage situation is more disastrous than they would like us to know. The current Fed meddling in the markets is unprecedented and dangerous, and Im afraid will have disastrous consequences in the end. The problem with the FED engineering is the unforeseen consequences, as all holders of HYD have just unfortunately and unfairly experienced. Basically we were all just taxed (and I can think of another word too) without representation by the FED. Im old enough to remember Greenspan saying he didnt watch the markets (which of course was BS), But this guy is the other extreme and he seems more out of control each day. This is way too much power concentrated in the hands of one man, particularly one who runs a politicized FED. Maybe Ron Paul is right, time to abolish the FED.
Well hopefully the sell-off of HYD is overdone. Right now it is trading at a 4.5% discount, which is unheard for a bond fund. For comparison, the TLT and EDV mentioned below are trading at a 0.1% discount.
From Seeking Alpha (Gary Gordon:
On 10/13/10, I gave my reasons for why the Fed would primarily purchase debt with a maturity of 5-10 years. In essence, keeping mortgage rates low involves targeting the 10-year note, while keeping big-ticket financing under Saran Wrap involves targeting consumer credit in the 3-6 year time frame. (Review my commentary, “Long Treasury Bonds Will Not Be On The Fed’s Buy List.)
On 11/3/10, the Fed confirmed that its $600 billion bond buying program (QE2) would concentrate on debt instruments with an average length of time of 6 years before repayment. This resulted in an immediate sell-off of Long Treasury ETFs such as Vanguard Extended Duration Treasury (EDV) and iShares Barclays 20+ Treasury (TLT).
(Note: Naysayers may not have appreciated my feature, “Is It Finally Time To Short Long Maturity Treasury Bonds?” Nevertheless, traders have profited from the QE2 trend.)
For investors, the question of what to do with current Bond ETF holdings is becoming more complex. I continue to hold my income producers that have a historically wide spread over treasuries with comparable average maturities. This includes iShares High Yield Corporate (HYG), iShares Preferred (PFF), JP Morgan Alerian Energy MLP (AMJ) and PowerShares Emerging Market Sovereign (PCY).
Indeed, 30-year U.S. Treasuries are at their highest levels since June. And that, in and of itself, might affect the attractiveness of current yields on all bonds. Yet I did not anticipate the intensity of selling pressure that Muni Bond ETFs have suffered.
Yields on top-rated tax-exempt debt his risen at every maturity, whether 2 years, 10 years or 30 years. And it appears that the higher long treasury bond yields climb, muni yields are simply going to follow suit. Higher muni yields mean lower Muni Bond ETF prices… tax benefits be damned.
A Dismal 5 Trading Days For Muni Bond ETFs (11/5/10-11/11/10) Approx % Market Vectors High Yield Muni (HYD) -5.54% PowerShares Insured National Muni (PZA) -4.37% SPDR Barclays Muni Bond (TFI) -3.53% iShares S&P Naitional Muni Bond (MUB) -2.74% Market Vectors AMT Free Intermediate Muni (ITM) -2.12%