Current Corporate Bond Risks

[Chuckanut]

Here is an interesting article an corporate bonds currently being sold. It points out that some bonds have such a low interest rate than even if rates do not go up, the real return is still negative after inflation. Other bond rates, while higher than inflation, are still historically low, thus adding to the priciple risk should rates rise. Some companies that have no immediate need are simply raising long-term money because the rates are so low.

As Corporate-Bond Yields Sink, Risks for Investors Rise - WSJ.com

Note: apparently, this article is behind a subscription wall. It is in the 8/13/2012 WSJ for those who might want to get the printed version at the public library.

 

[pb4uski]

As an investment for the next 10 years, bonds give me more fear than stocks do, but not enough fear to drastically increase my stock allocation from its current 60%. My hope that the reason for higher interest rates is a robust economy so my interest rate losses on my bond portfolio will be more than offset by appreciation of my stock portfolio.

 

[rodi]

Note: apparently, this article is behind a subscription wall. It is in the 8/13/2012 WSJ for those who might want to get the printed version at the public library.

Tip for getting to content behind the wsj firewall.
Works most of the time.
Go to the link - copy the headline.
go to news.google.com, insert the headline - with quotations around it.
click through to the article.
With the wsj - you'll get a notice that this is a limited "free pass" to subscriber content.
I don't do it often enough to know if you will hit a wall on the 3rd/5th/10th time in X days.

 

[haha]

As an investment for the next 10 years, bonds give me more fear than stocks do, but not enough fear to drastically increase my stock allocation from its current 60%. My hope that the reason for higher interest rates is a robust economy so my interest rate losses on my bond portfolio will be more than offset by appreciation of my stock portfolio.

Because stocks are very long duration securities, and even at these low interest rates 10 year treasuries have a duration of mybe 7-8 years, it may well be that if interest rates rally stocks will lose more than bonds.

It has happened before.

Ha

 

[WilliamG]

We will look at our portfolio at end of September and anticipate being over 5% under our allocation to the "safe" short term reserve part of our fixed income. Along with IBonds and a CD we are currently invested in Vg Short Term IG. Thinking about adding Vg GNMA. Any opinions on this or suggestions for an alternative target for this type investment?

 

[eytonxav]

I think a lot of the recent bond phobia is overblown, especially with respect to short duration bonds. Some articles that ring a warning bell make it sound like interest rates are posied to take off like a rocket and will keep on going indefinitely. In my opinion, rates will raise at some point, but with what velocity and for how long is not known, but I suspect it may not be as severe as some of these headlines would lead you to believe. I would also say that in inflationary/rising rate environments, stocks may initially perform better than bonds for a short period of time, but ultimately stocks don't like inflation/raising rates either and can become far more volatile.