To Bond or not to Bond, That is the Question

Best of the Bond Market for April 16th, 2012

Article by Barrons

The Great Bond Conundrum  Our Take: The tips for investors from this article are as follows:

  • Because rates are so low, instead of going out further in time to get a higher yield and buying say a 30 year bond stick with bonds with a shorter time to maturity and take on a bit more risk in terms of credit rating in order to get your extra yield.
  • Look for issues that have a low credit rating but are in turnaround mode.  They mention Ford Motor Company as a possible target that fits this description.
  • Pick the right industry.  Right now they think healthcare looks attractive.
  • Look at convertible bonds.
  • Look at Private activity Municipal Bonds which are muni bonds used to finance things like airports and toll roads.  They do not have as many institutional buyers as other segments of the muni bond market so can offer higher yields as a result.

Lastly, keep in mind that unlike other segments of the bond market, junk bonds tend to rise and fall with the stock market, so they do not offer the same diversification protection that other bonds may.

Article by WSJ

PIMCO’s New ETF May be Worth a Look – Looks like PIMCO’s new ETF, which is now trading under the ticker BOND, is off to a good start.  From its Feb. 29th launch through Apr. 12th its up 2.52%.  The ETF is designed to track the PIMCO Total Return fund, which is the largest bond fund in the world.  Whats interesting however is that the Total Return Fund was only up .74% during the same time. According to the article the reason why is because the ETF is smaller and not subject to the same restrictions as a mutual fund and they can therefore be more creative.  The article basically concludes that the ETF is worth a look.  For the other side see our article on 3 arguments against investing in the PIMCO BOND ETF.

Article by WSJ

A History Lesson for Bond Market Bears Our Take: This is the Gist: “Since 2001, the 10-year Treasury yield typically has hit its calendar-year peak during the first half, and especially in the middle of the period, and then slipping back during the second half. The only exception was in 2003, when the yield peaked in August.”

Article by @everydayfinance

What Makes and ETF Tax Efficient? Our Take: Best explanation we have seen on the topic with tons of detail.  Here is a teaser to get you to read the whole article:  “This system of creation and redemption allows investors to skip on a majority of their capital gains tax. By virtue of the creation and redemption process, exchange-traded fund administrators can “hide” capital gains that would otherwise be passed on to investors.”

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