Author Topic: Bond Investment Alternatives  (Read 4757 times)

jarts98

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Bond Investment Alternatives
« on: January 20, 2013, 05:13:40 PM »
Much has been written lately about the "impending" bond bubble burst.  First, it's interesting to see that these articles have been written for the last several years, yet there has been no collapse of the bond market.  Obviously trying to time it is impossible.  However researching and understanding alternatives makes sense to me.  Making changes to your specific investments after research is a more educated decision and not a reflex to the hype.

This leads me to ask:  For those who have changed the bond portion of their portfolio (both long- and short-term portfolios), what investment changes have you made? Where did you move some or all of your bond investments?  Or are you resolved to stay the course, no matter what rates (and therefore bond returns) do in the future?

Thanks for your thoughts.

sol

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Re: Bond Investment Alternatives
« Reply #1 on: January 20, 2013, 05:29:16 PM »
I'm holding the course within my bond allocation, with a mixture of treasuries, TIPS, and mortgage-backed securities.  I'm light on US corporate, though not absent.

Are there international bond markets that don't suffer from the same sort of overinflation that seems to be afflicting the US bond market?

aclarridge

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Re: Bond Investment Alternatives
« Reply #2 on: January 22, 2013, 08:24:31 AM »
On this website

http://etfdb.com/etfdb-category/emerging-markets-bonds/dividends/

there's a list of international bond etfs. The top one, JMB for example has a "dividend yield" of 4.22% and MER of 0.6%...I assume they mean weighted average yield-to-maturity? Average duration about 7yrs. By comparison 7y treasuries are at ~1.3%. I don't know if treasuries are that much safer than the ETF to justify that return. Bernanke has just driven the prices up.

Personally, I think now is a great time to capitalize on the incredible gains you've enjoyed in the past few years holding US government bonds.

Richard3

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Re: Bond Investment Alternatives
« Reply #3 on: January 22, 2013, 08:40:53 AM »
Mid grade corporate bonds are the only section of the bond market I have any long exposure to. There are still some bargains to be had IMO.

I am gradually building up short (rates will rise) positions on interest rates that are below 0.5% right now. I think the lid will come off, and when it does, there's a lot of money to be made. If I'm wrong, I can't lose too much either, since 0 is kind of a hard cap in the opposite direction.

smedleyb

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Re: Bond Investment Alternatives
« Reply #4 on: January 22, 2013, 08:49:07 AM »
On this website

http://etfdb.com/etfdb-category/emerging-markets-bonds/dividends/

there's a list of international bond etfs. The top one, JMB for example has a "dividend yield" of 4.22% and MER of 0.6%...I assume they mean weighted average yield-to-maturity? Average duration about 7yrs. By comparison 7y treasuries are at ~1.3%. I don't know if treasuries are that much safer than the ETF to justify that return. Bernanke has just driven the prices up.

Personally, I think now is a great time to capitalize on the incredible gains you've enjoyed in the past few years holding US government bonds.

What you're proposing via this bond trade reminds me of selling a beachfront condo in Miami in 2005 to buy an equivalently valued 5 bedroom McMansion in some nondescript Phoenix suburb the very next day.   I fail to see where one is really "capitalizing" in the long term.

Another Reader

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Re: Bond Investment Alternatives
« Reply #5 on: January 22, 2013, 08:56:08 AM »
I think when you have to loan money to the Hugo Chavez' and Vladimir Putins of the world to get a decent yield, the risk is mispriced and you should look elsewhere.

COguy

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Re: Bond Investment Alternatives
« Reply #6 on: January 22, 2013, 11:52:22 AM »
Personally, since I don't have that much to save in bonds, I have been buying a lot of I-bonds

There are several nice discussions of the max downside of bonds on the Bogleheads forum.   After reading, it is not a scary as I once thought.  Personally, if I had a lot of money in longer term bonds, I would capture the gains now and move to shorter term bonds of some sort.  Of course I did this last year with about $10,000 and I missed out on quite a bit of upside.  But, I don't regret it.  To me, bonds are for safety and I take my risk on the equity side.

aclarridge

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Re: Bond Investment Alternatives
« Reply #7 on: January 23, 2013, 09:24:22 AM »
On this website

http://etfdb.com/etfdb-category/emerging-markets-bonds/dividends/

there's a list of international bond etfs. The top one, JMB for example has a "dividend yield" of 4.22% and MER of 0.6%...I assume they mean weighted average yield-to-maturity? Average duration about 7yrs. By comparison 7y treasuries are at ~1.3%. I don't know if treasuries are that much safer than the ETF to justify that return. Bernanke has just driven the prices up.

Personally, I think now is a great time to capitalize on the incredible gains you've enjoyed in the past few years holding US government bonds.

What you're proposing via this bond trade reminds me of selling a beachfront condo in Miami in 2005 to buy an equivalently valued 5 bedroom McMansion in some nondescript Phoenix suburb the very next day.   I fail to see where one is really "capitalizing" in the long term.

Are you just against bonds in general right now? I have a hard time arguing with you there, the only yield is found in junk. I'm mostly in equities myself.

To be clear, I'm not recommending that trade, simply stating that I think one option appears a little better than another. I would guess there is a higher risk adjusted return from JMB than from a 7y treasury bond. Do you disagree? I'm not an expert, if you do I would like to learn why.

jrhampt

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Re: Bond Investment Alternatives
« Reply #8 on: January 23, 2013, 09:30:23 AM »
I'm staying in my muni bond fund.  I've been waiting to buy i-bonds until the fixed interest rate gets above zero, but I guess I could be waiting a while for that.

joer1212

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Re: Bond Investment Alternatives
« Reply #9 on: January 31, 2013, 08:42:21 PM »
Much has been written lately about the "impending" bond bubble burst.  First, it's interesting to see that these articles have been written for the last several years, yet there has been no collapse of the bond market.  Obviously trying to time it is impossible.  However researching and understanding alternatives makes sense to me.  Making changes to your specific investments after research is a more educated decision and not a reflex to the hype.

This leads me to ask:  For those who have changed the bond portion of their portfolio (both long- and short-term portfolios), what investment changes have you made? Where did you move some or all of your bond investments?  Or are you resolved to stay the course, no matter what rates (and therefore bond returns) do in the future?

Thanks for your thoughts.

I am 'staying the course' with my bond allocation for the most part, but I have diverted some of my assets (5%) that would normally have gone into a total bond market index fund, into a 'stable value fund' instead. Should the bond bubble burst, at least this money will be unaffected.
That said, my asset allocation is for the long-haul, so even a bond market carnage would have minimal effect over this time horizon.
« Last Edit: January 31, 2013, 10:24:23 PM by joer1212 »

strider3700

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Re: Bond Investment Alternatives
« Reply #10 on: January 31, 2013, 09:10:48 PM »
I have to admit I don't know much about bonds other then that I didn't want 100% equities.   I split between
http://ca.ishares.com/product_info/fund/overview/CBO.htm
and
http://ca.ishares.com/product_info/fund/overview/CLF.htm?fundSearch=true&qt=CLF

Both are very canadian which worries me  and quite short term  but commission free bonds etf's were slim pickings on my list

also available are
http://ca.ishares.com/product_info/fund/overview/CAB.htm?fundSearch=true&qt=CAB
and
http://ca.ishares.com/product_info/fund/overview/CHB.htm?fundSearch=true&qt=CHB

that's about it for bonds...