A Bear Market In Bonds

[yakers]

http://tinyurl.com/fyn6r

In the USA Today they actually had an interesting article about bonds in a bear market.

I particularly liked the image:
"A bear market in stocks is like being stepped on by an elephant. A bear market in bonds, though, is like being bitten by a poodle — for a decade."

 

[cute fuzzy bunny]

Thats a good one.

 

[Gone4Good]

I think the article erroneously focuses on the market price of the bond. If you're reinvesting coupons and holding to maturity, your total return from fixed income investments over the life of the bond will actually be higher in a "bear" market scenario and lower in a "bull" market.

 

[brewer12345]

Good point, 3 Yrs. Plus, if one invests in bonds that offer a potential capital gain as well as yield, the direction of interest rates makes a lot less of a difference.

 

[audreyh1]

Hey, I'm looking forward to BUYING bonds again. They're finally getting cheaper.

4.75% - is it a bear market in bonds? Well I don't know, but I'd swear 3% to 4.75% WAS.

Audrey

 

[brewer12345]

audrey, I am tip-toeing into some junk issues at the moment. Once we see the 10 year treasury over 5%, I will be watching very carefully because there will likely be an opprtunity for capital gains at some point.

 

[poyet]

The article did not discuss bonds per se, but bond funds and clearly indicated that the discussion did not apply to those holding (individual) bonds to maturity. I found the paper rather clear though not offering solutions to the problem addressed (i.e. generating income) and curiously enough did not mention TIPS as a class of relevant assets.

If one manages to make money holding bond funds (LONG) in an environment where rates are rising, let me know, I'll be interested !!!. One way I think of (for individuals with low fees access to the product and good liquidity) is going SHORT an ETF which replicates the performance of an index of bond funds, for example the EuroMTS 10-15YTM (Ex CNO-Etrix) which is one such index (with associated ETF) for the Euro zone. There must exists the equivalent in the US which I do not know.

Any other idea ?