Morning Journal-Our bungled bank bail out

Our bungled bank bail out

Economics
This Week’s Data

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The Chicago Fed’s National Activity Index improved in June (short):
http://www.capitalspectator.com/archives/2012/07/chicago_fed_nat_2.html#more

The future of manufacturing (short):
http://mjperry.blogspot.com/2012/07/2020-headline-protests-break-out-in.html

What the TIPS are telling us (short):
http://scottgrannis.blogspot.com/2012/07/the-message-of-tips-extremely-weak.html

China PMI gives mixed picture (short):
http://www.zerohedge.com/news/chinas-schrodinger-economy-continues-contract-and-expand-same-time

Weekly update on gasoline (short):
http://advisorperspectives.com/dshort/updates/Gasoline-Update.php

August 2010 QUARTERLY REFUNDING STATEMENT

The U.S. Department of the Treasury is offering $74 billion of Treasury securities to refund approximately $33.0 billion of privately held securities maturing on August 15, 2010. This will raise approximately $41 billion.

PIMCOs Gross likes Muni Bonds and Treasury Inflation Protected Securities

Municipal bonds are among the best buying opportunities now as states line up for billions in federal aid from the incoming Barack Obama administration, said Bill Gross, chief investment officer of the giant bond firm PIMCO.

Other strategies offered by Gross in his January investment newsletter were buying Treasury Inflation Protected Securities (TIPS) and certain investment-grade corporate bonds.

By contrast, in the Treasury market, "low yields offer little reward and increasing risk," given ballooning federal budget deficits, he said.

PIMCO's Gross says muni bonds and TIPS "attractive"

By Ros Krasny

CHICAGO (Reuters) - Municipal bonds are among the best buying opportunities now as states line up for billions in federal aid from the incoming Barack Obama administration, said Bill Gross, chief investment officer of the giant bond firm PIMCO.

Other strategies offered by Gross in his January investment newsletter were buying Treasury Inflation Protected Securities (TIPS) and certain investment-grade corporate bonds.

By contrast, in the Treasury market, "low yields offer little reward and increasing risk," given ballooning federal budget deficits, he said.

Gross noted that requests for aid from municipalities and states total nearly $1 trillion "and to think California or New York City would be allowed to fail is, well -- unthinkable."

"Municipal bonds ... selling at historically high ratios relative to U.S. Treasuries, offer attractive price appreciation potential, or at the very least a defensiveness with high carry that a 2 1/2 percent 10-year Treasury cannot," Gross said.

According to Municipal Market Data, top-rated 30-year munis now yield 161 percent and 10-year munis yield 133 percent of comparable Treasuries.

Triple A rated munis started 2008 yielding a more normal 85 percent of 30-year Treasuries and 79 percent of 10-year government bonds.

Meanwhile, Gross said he doubted the U.S. economy was in for the type of deflation that markets are forecasting, making TIPS a good buy.

Current ultra-low Treasury yields "cannot possibly be maintained unless deflation, as opposed to inflation, becomes the odds-on favorite," he said.

Market-based break-even inflation rates now point to a consumer price index averaging negative 1 percent for the next 10 years, which Gross termed "possible, but not likely."

On the corporate bond side, yields of 6 percent or more for intermediate maturities are still common, Gross said.

"Investors should recognize the value of high-quality, investment-grade corporate bonds in many markets."

Otherwise, PIMCO continues to maintain a strategy of buying assets that are under the federal bailout "umbrella."

"Shake hands with the government ... their checkbook represents the largest and most potent source of buying power in 2009 and beyond," Gross said.

Gross said investors needed to be vigilant about higher inflation over the long term, given the "near certainty of future budget deficits approaching 6 percent to 7 percent of GDP."

(Additional reporting by Karen Pierog; Editing by Kenneth Barry)