Facebook and Twitter shares both cratered this week. It may be time to ask yourself, as I did here on January 17, 2018, are you ready for when the stock market crashes? When the stock market crashes, there will have been plenty of opportunities for you to prepare for it. But that’s easier said than done. Because to do so you need to go against the grain. For example, bond investors are getting a blast of Arctic air as interest rates march higher. Prices are down. But does that mean it’s time to sell? No. The key to weathering this bond chill is to remember why you own bonds in the … [Read more...]

Thirty-year Treasuries yield 3.11% today. Ten-year Treasuries yield 2.97%. You get an extra 0.13% in income each year for lending the government money for an additional 30 years. Sounds like a raw deal. Not according to some institutional investors as reported here by the FT. The 30-year or “long bond”, currently yielding 3.10 per cent, is attractive for so-called buy and hold investors such as pension funds and insurers who need to offset lengthy liabilities over the coming decades. A steady rise in yields from below 2.70 per cent in December has been accompanied by stronger demand at … [Read more...]

Only two times before has the ratio of junk bond yields to high-grade bond yields been lower than it is now. Those two instances preceded the Asian market crisis, and the global financial crisis. Bloomberg's Sid Verma and Cecile Gutscher report: According to a key valuation metric, investors are headed for the kind of bullishness on high-yield bonds that’s been seen just twice before: during the halcyon days of 1997’s tech bubble before the Asia crash, and on the eve of the global financial crisis a decade later. The ratio between U.S. junk-bond yields and their high-grade counterparts has … [Read more...]

Cecile Gutscher writes at Bloomberg that corporate bonds are offering their highest yields in years: You need to rifle through 18 years of history to find selloffs that compare to the one corporate bond investors are now enduring. Debt of American companies just posted their third-worst 100-day returns since 2000, according to a JPMorgan Chase & Co. index, as tighter monetary conditions leave their mark on high-quality bonds with longer maturities. With negative returns likely to scare off retail investors, the outlook for the asset class looks grim, JPMorgan strategists said in a … [Read more...]

Regulations have been slowly destroying the bond market in America. But, new algorithmic trading computers are stepping in to modernize the market. Bond trading desks are relying more on computer driven trading all the time. The FT reports: While debt issuance has surged, traders say liquidity has deteriorated sharply in recent years, as a torrent of regulations forced banks to reduce their trading desks. Putting precise numbers around this decline is tricky, as liquidity is an ephemeral concept. Asking a dozen traders will typically yield at least as many answers. But broadly speaking, … [Read more...]

10-year Treasury yields cracked through 3% for the first time since 2013. With short-term yields on the rise, and now long-term yields starting to follow suit, the yield drought appears to be coming to an end. … [Read more...]

For years PIMCO was driven by the investing acumen of Bill Gross and Mohamed El-Erian. After an acrimonious split with El-Erian in 2014, and unceremoniously dumping Gross the same year, PIMCO's plan is to replace these titans of the bond industry with some algorithmic software and an office in trendy Austin, Texas. The Wall Street Journal's Justin Baer writes: Pimco’s mutual funds had $33 billion in net inflows in 2017, reversing a four-year stretch of client withdrawals, Morningstar said. While Pimco remains one of the world’s biggest investors, with about $1.7 trillion in assets, the firm … [Read more...]

You always need to study your downside protection and do what’s difficult to do. Recently, I added half of my 2017 SEP-IRA contribution to Vanguard GNMA—a sizable addition to my overall GNMA position. I didn’t do it because I feel like I can predict where interest rates are headed. Who can? It’s all fine and good when the talking heads spout off about three or four rate increases this year and more to come next year, but in reality their advice doesn’t cost them a penny. If they’re wrong and the market crashes, like it did twice already this century, will they be there for you, or me for … [Read more...]

Originally posted November 1, 2017. A phrase I often hear from prospective clients is, “I don’t understand bonds, but I know I need them, and that’s one of the reasons I’m talking with you.” There’s a lot of wisdom in that phrase. It’s like saying to your dentist, “I don’t understand root canals, but my tooth is killing me and I know I need one, and that’s the reason I’m sitting in this chair.” Knowing what we need is different from understanding how to do it. When I think back to when I first joined Dick Young’s management firm in 1998, he had a huge following of investors seeking … [Read more...]