Best of the Week
Most Popular
1.Gold Price Target of USD 2,300 - GoldCore
2.Greece Banking System Collapse Monday as ECB Pulls the Plug, Capital Controls Ahead of GrExit - Nadeem_Walayat
3.Why British Muslims Are Leaving Elysium Paradise for Syrian Hell - Nadeem_Walayat
4.Greece BANKRUPT! Financial and Economic Collapse to Follow IMF Debt Default - Nadeem_Walayat
5.Extreme Gold/Silver Shorting - Zeal_LLC
6.European Empire Strikes Back Against Greek Debt Fantasy, Counting Down to GREXIT - Nadeem_Walayat
7.Gold And Silver – Three Choices: Sell, Hold, Hold and Add. A Trading Treatise - Michael_Noonan
8.Gold and Silver Price Headed for Breakdown - Jordan_Roy_Byrne
9.Greece Crisis OXI - Raul_I_Meijer
10.Flatline Investing and Dead End Debt Schemes - Doug_Wakefield
Last 5 days
Greece Referendum Vote Result Forecast Yes Win, But Depression Will Continue - 5th July 15
The Great Greek Economic Depression - 4th July 15
Happy 4th of July Stock Market Analysis - 4th July 15
The Most Pressing Reason Yet You Want to Avoid Investing in Retail Stocks - 4th July 15
Fed’s Full Normalization and the Stock Market - 3rd July 15
The U.S. Dollar's 2014-2015 Rally: Wave 3 in Action - 3rd July 15
Stock Market Where are we? And where are we Going? - 3rd July 15
Xi’s Anti-Corruption Campaign Is Key to China’s Prospects - 3rd July 15
How the New Iranian Nuclear Deal Will Impact Crude Oil - 3rd July 15
China's Stock Market Rollercoaster Ride Continues - 3rd July 15
Gold Stocks Cheap to Buy but Not for Long - 3rd July 15
Capital Controls and a Bank Holiday in Greece… Here’s How You Can Profit - 3rd July 15
Greece's Varoufakis: I will Resign if there's a 'Yes' Vote - 2nd July 15
The Student Loan Bubble: Gambling with America’s Future - 2nd July 15
Inflation Is Lurking, but This Asset Can Protect You - 2nd July 15
Three Total Wealth Stock Investor Tactics You’ll Need Because Greece Isn’t Over - 2nd July 15
Why This $5.6 Trillion Investor Profit Boom Is Set To Take Off - 2nd July 15
Greek Debt Crisis: "Too late to prepare now" - Video - 2nd July 15
Guaranteed US Dollar Death Dynamics - 2nd July 15
The Greek Stress Test & The Reality Of Incremental Changes - 2nd July 15
Forget Drachmas Greece Syriza Government Could Instruct Central Bank to Print Euros! - 2nd July 15
Greece Debt Crisis Trigger for Stock Market Crash or Bull Rally? Video - 1st July 15
Gold Stocks Break Below 2008 Low - 1st July 15
SPX Stock Market Retracement May be Over - 1st July 15
Silver Tunnel Vision 'Experts' - 1st July 15
Gold And Silver - Monthly, Quarterly Ending Analysis - 1st July 15
Europe’s Controlled Demolition - 1st July 15
The End of Dow 18,000; Bailouts No Longer Extended  - 1st July 15
Athens Mayor: Greek Government Should Resign - 1st July 15
China Stocks - This Is What a Bubble Looks Like - 30th June 15
Stocks Plunge on Greece Euro-Zone Financial Armageddon Blackmail - 30th June 15
Greece Crisis Shows Importance of Gold as Europeans Buy Coins and Bars - 30th June 15
Stock Investors Express Route to Profits in the Healthcare Sector - 30th June 15
Beyond the Greek Impasse - 30th June 15
Gold GDXJ : Impulse Move Pending - 30th June 15
Fed Interest Rate Increase Could Be Best Thing to Happen to Gold - 30th June 15
Marc Faber - Greece is Basically Bankrupt - 30th June 15
Greece - Shoot the Dog and Sell the Farm - 29th June 15
Grexit?, BIS Warning, Chinese Market Crash & Systemic Risk Shake the Global Economy - 29th June 15
The New "Sharing Economy" May Not Be the Profit Bonanza Everyone's Expecting - 29th June 15
Gold and Silver Greece and Short Positions - 29th June 15
Volatility and Sleep-Walking Markets - 29th June 15
Greece BANKRUPT! Financial and Economic Collapse to Follow IMF Debt Default - 29th June 15
Stock Market More Decline Ahead? - 29th June 15
China Stock Market Crackup - The Final Trap Looms... - 29th June 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

China Stocks - Where are they going?

U.S. Bond Market - If There’s a Time to Panic… It’s Now

Interest-Rates / US Bonds Jun 11, 2013 - 06:11 AM GMT

By: Investment_U

Interest-Rates

Alexander Green writes: I received several letters from readers concerning my recent column opining that the 30-year bull market in bonds is over.

Some asked if it was really that big a deal that bonds fell by 2% in May. The answer is yes. It is a big deal, especially when 10-year Treasurys yielded just 1.7% a month ago. That slight sell-off erased more than a year’s worth of interest.


The paltry income from these bonds is why longtime credit analyst Jim Grant says Treasurys offer “return-free risk.”

Of course, some say the bonds could rally 2% from here and investors would be made whole again. It’s possible, but how likely is it? Successful investing is about analyzing probabilities not possibilities.

With the economy improving, commodity prices (including gold) down, the dollar up and the stock market strong, more investors believe measly yields that offer safety from the storm is not what they’re looking for.

Many of them are moving money out of their vulnerable bond funds and moving them into investments with more total return potential.

Get Out Now
Several readers also asked me to clarify what a leveraged bond fund is and why they should get the heck out of it if they have one.

A leveraged bond fund is the fixed-income equivalent of buying stocks on margin. We all know that a margined stock portfolio performs better on the upside… and hurts more on the downside.

The same is true of leveraged bond funds.

The fund manager borrows short-term to buy longer-term bonds with higher interest rates and is therefore able to earn “the spread” or difference between the two rates.

This is all well and good as long as the bond market is flat or climbing. But when it tanks – as it did in May – look out below.

If you don’t know whether your bond funds are leveraged or not, don’t just shrug your shoulders. Call the fund and ask. If it is… get out now. Don’t hesitate.

And if you own a closed-end fund that uses leverage, that goes double.

Twice as Deadly
Unlike open-end funds that are bought or redeemed at net asset value (NAV) at the close of each business day, a closed-end fund is publicly traded. That means it has both a market price and a net asset value. The fund may trade above its net asset value – in which case it is said to be trading “at a premium” – or it may trade below its NAV, in which case it is trading “at a discount.”

When times are good in the bond market, these funds tend to trade fairly close to their NAVs. But when bonds sell off, the funds often fall to a substantial discount.

As a shareholder, that means you will see your position decline more than the bond market (since the portfolio is leveraged), and you may also see the fund drop to a substantial discount to its NAV.

It’s a double whammy.

Believe me, there are folks who own closed-end bond funds who will be stunned when these funds drop 30%, 40%, 50% or more. Those sorts of drops are not uncommon.

But unless an investor – or his broker – has seen a real secular bear market in bonds, he may have no idea what he’s in for.

That’s why fixed-income investors should heed legendary fund manager Peter Lynch’s sage advice: “If you’re gonna panic… do it early.”

Good investing,

Alex

P.S. My colleague Marc Lichtenfeld has been tracking the bond market’s inevitable collapse for months now. In a new special report, he outlines what’s about to happen and how investors can fully protect themselves. He’s even narrowed in on a unique type of income investment that’s poised to soar as much as 160% when this “three-minute event” occurs.

To see his full presentation, click here.

Source: http://www.investmentu.com/2013/June/time-to-panic-is-now.html

http://www.investmentu.com

Copyright © 1999 - 2013 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email: CustomerService@InvestmentU.com

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History