Dangers Lurk in the Bond Markets

Bonds have become so risky that bond-buyers are now being classified as “aggressive” investors by UBS.

Warnings about bonds and a bond market bubble continue to grow.  Investors may believe that bonds are safe, like certificates of deposit, but that is simply not the case. In fact, TD Ameritrade CEO Fred Tomczyk recently told the firm’s advisers, at an annual conference, to be aware of the risks of bond investments.  TD Ameritrade’s retail division even sent an article to its individual investors entitled “Bonds Are Not Gravity Defying: Be Prepared” (“TD’s Tomczyk warns about bond route,” InvestmentNews). (more…)

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Junk Bond Funds Can Have Different Levels of Risk

However, according to opinions in the financial press, both junk bonds and investment grade corporate bonds are overbought and positioned for a correction.

Junk bonds are at the end of their rally and look like a bubble ready to burst according to many analysts.  Junk bonds have been driven to record levels by yield-seeking behavior. Now that a correction may be near, fund managers are reacting in two ways: some are sacrificing some yield by upgrading the credit quality of their portfolios, and others continue to seek higher yield by buying smaller, riskier deals.  For high-yield bond fund investors and their advisers seeking to manage risk, it is important to know the difference and to know what is producing the yield they seek. (more…)

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Much Uncertainty Exists in the Bond Markets

With bond prices still near record highs and interest rates at record lows, higher interest rates and lower Treasury bond prices are inevitable – it is only a question of when that will occur. Investment grade corporate bonds are also seen as being at risk.

The Wall Street Journal is continuing its outpouring of articles warning of a coming debacle in bonds and bond mutual funds, especially U.S. Treasury securities.  Although the Federal Reserve is not expected to raise interest rates this year, after the fiscal cliff deal, U.S. Treasuries experienced a sell off (“Why Bond Funds Could Get Dicey This Year”). (more…)

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