Alice Huang, Dorothy Ma, and Pearl Liu of Bloomberg report on how a 99% bond wipeout handed hedge funds a harsh lesson on China. They write: From afar, China Evergrande Group had all the makings of a killer distressed-debt trade: $19 billion in defaulted offshore bonds; $242 billion in assets; and a government that appeared determined to prop up the country’s faltering property market. So US and European hedge funds piled into the debt, envisioning big payouts to juice their returns. What they got instead over the course of the next two years is a harsh lesson in the dangers of trying to … [Read more...]
Young Research & Publishing has been providing research and insights on bonds to institutional investors, corporate financial officers, business owners, and individual investors for over four decades. Richard C. Young started Young Research & Publishing in the 70s to publish the authoritative Young’s World Money Forecast, a 50-page monthly investment report for institutional land high net worth investors. Today, our research on bonds is geared toward investors in or nearing retirement who are looking to preserve and protect wealth.
How’s Vanguard GNMA with YTM of 4.6%?
If you hold Vanguard GNMA like I do, then you will be pleased to know, regardless of its price being down, that as of 12/31/23, its yield to maturity was 4.6%. Sure, it’s been a rough ride for its price from the aftershock of historic interest rate hikes. But as you all know, Your Survival Guy doesn’t get too worked up about prices. At today’s yields, legacy positions maturing will be invested at rates you can sink your teeth into. But what if interest rates spike from here? So what? As investors look at the landscape of the huge debt overhang, won’t interest rates have to go higher? Maybe. … [Read more...]
Inflation? Stocks? Breathe In, Breathe Out, Move On
With everyone talking about inflation, here’s a good question: What if they’re wrong? What if the Federal Reserve’s intention to keep rates higher for longer turns out to be a hope, and not a reality? What if the dollar runs into trouble? With the record debt, America’s current standing as the nicest house in a bad neighborhood may get overrun by a zombie apocalypse. What about deflation? With all this talk about rising prices, let’s not forget to stop and smell the roses in your neck of the woods. You can’t go into most cities after dark without being on high alert. As one friend … [Read more...]
Gobble, Gobble, Gobble the Rule of 72
Savvy investors are gobbling up these yields. Because you don’t need to compound big numbers to have big success. To double your money, you could do it with T-bills paying more than five percent today, compounding them for 15 years. But the key is, will they stay at five percent? Think about the Rule of 72. The math. Dividing 72 by a compound interest rate tells you how many years it takes to double your money. But it’s tricky. Because T-bills have a short lifespan. They provide comfort for three months at a time. It’s why investors are gobbling them up. They’re hard to pass up. But I … [Read more...]
Buy Fixed Income Rates Not Seen in 22 Years
You hear it all the time today. “I’m getting an incredible rate on my money,” or “I can get you this on your money.” And so on and so forth. Yes, Your Survival Guy can see it, too, especially with rates at levels we haven’t seen in around 22 years. Opportunities are everywhere for the fixed-income investor. But that doesn’t mean you dump all your existing positions. That’s throwing the baby out with the bathwater. Because when you sell an existing bond for pennies on the dollar, just to buy a higher yielding one, you’re making more interest on less dollars than what you initially started … [Read more...]
If You’re Overexposed to Stocks, Then Look Here
If you’re overexposed to the stock market, it’s been a long time since risk-free Treasury bills offered yields like these. Yields you can sink your teeth into and do it again in a few months. Your Survival Guy isn’t in the prediction business. Predictability is not something you can say about tech-heavy Nasdaq, for example. Because we’ve seen how long it can stay down when problems arise. But that’s not my concern today. My concern is making sure you have multiple streams of income, so to speak. And I like doing it without you being exposed to leverage, which basically eliminates … [Read more...]
Investing in Bonds Is a Lot Like High School
One of the virtues of constructing a bond ladder, where you own the bonds outright, is that you’re not confined to a mutual fund and/or ETF where the emotions of the group can rule the roost. When you invest with groups, you become a groupie. If they panic and sell, that forces the fund manager to sell what you might feel are good positions simply to raise cash for those exiting the building. You don’t have a choice in the matter. When it comes to bond ladders, you also have direct control over timing. In other words, as bonds come due, you can decide whether it’s time to change course … [Read more...]
Fixed Income Investing Today: A Generational Buying Opportunity
Look, sometimes life just goes your way. You wake up one morning and see interest rates you can sink your teeth into. It’s been years of zero-percent drudgery. Somehow, we got through it, and for many of you, your patience paid off. Today, dear fixed-income investors, you have a cornucopia of products paying yields one could only dream of not too long ago. How about those of us holding onto fixed-income positions purchased through the drought years that began after the financial crisis? You know what? If you have a diversified portfolio with laddered maturities, you might be pleasantly … [Read more...]
“Wow, That Was an Obvious Buying Opportunity”
Bond investors pay attention. The loud sucking noise you hear is impatient investors selling for pennies on the dollar. We may look back on today in a few years and say, “Wow, that was an obvious buying opportunity.” It’s funny (not that funny) that when investors see lower prices in their portfolio, their instinct is to sell. When they see lower prices at Cosco, they buy more. Why not bring that consumer eye to your money? I do. Because I see unique opportunities for your lazy cash. Get it into the office. No more working from home. It’s time to increase its production. Look, I … [Read more...]
“Hey, Survival Guy, Why Are Bond Prices Down?”
UPDATE 8.22.23: With bond yields rising higher than they've been for some time, it's a good time to review duration. Bond duration is a measure of the change in price for a bond given a one percentage point change in interest rates. Every time interest rates rise, bond prices fall, and vice versa. Different bonds respond with greater or lesser volatility to changes in interest rates, and the magnitude of that change is measured by the bond's duration. Below is an update to the interest rate table I posted back in March 2022. Look how rates have changed. Investors in bonds today are actually … [Read more...]
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