Happy Thursday! I’m conflicted and want to poll my readers: what do you think of the bond market?
Here’s my reason for asking: I’m smart enough to know (believe it or not) that bonds fall as interest rates rise….BUT I’m reading something different lately.
I’ve been reading from experts as smart as Bill Gross that the bond collapse has already been factored into the market overall (bonds have fallen hard the last few weeks). To an outsider, this may actually look like a buying opportunity. In fact, some pros are reportedly buying up government and agency bonds right now.
Do you think the bond collapse is over? Give me your best argument below. Thanks!
I honestly have no idea either or. I don’t really follow the bond market and usually if everyone is doing it, its time to turn the other way. In this case it seems as though the people who are doing it are the so called pros. Not sure if thats a good sign or time to jump ship.
I’m with Thomas, I honestly have no idea. I own two bond funds and the duration on one is about 5 years and on the other is about 8. I don’t have any plans on changing that because I just don’t think it’s worthwhile to try and predict what will happen. Experts have been predicting a bond market collapse for several years now and it hasn’t happened. While I certainly might be punished in the next few years by not switching to a shorter term, I’ve been rewarded for the past few years by not doing so. In the long-term it will all even out and I feel like my end result will be better by holding steady.
I agree. I’m thinking about reallocating my portfolio (a little overdue because I let my winners run a little longer) and that would mean adding to my bonds. Although they’ve gotten smoked lately, I’m not sure we’re at (or near) the bottom….although some experts say they’ve reached a low…..
I know nothing about the bond market. Maybe you can write a post about it once you get some reader feedback?
The bond market is an interesting place (for me) but might be dry as dirt for my readers!
Not true! Bonds have more fun!
That’s a great question Joe and one that I wish I knew the answer to. I don’t follow the bond market that much, but do enough to know that they have taken it on the chin recently. It seems counterintuitive to me to get into them now, but thankfully there are people out there much smarter than me. That said, following the money could be a good thing…who knows? 🙂
Yeah, that’s why I asked….it also seems early in the game to be a buyer, but when I hear so many pros talking about finding value in the bond market, I start thinking maybe it isn’t just marketing hype anymore.
See, I always thought that as interest rates rose, bonds would go up, because they would be earning more.
You’re right on one aspect, Edward: interest rates rise on new bonds that are coming out, which is precisely why existing bonds drop in value. Who wants an old bond paying 5% when you can get a new one paying 6%? The only way they can compete is to drop the price.
A few thoughts on the bond market:
I do not think we have hit the bottom in the bond market, and I do not think we’ll hit the bottom for at least a few years (possibly longer). I think this because:
1. Ben Bernanke is a student of the Great Depression. It’s commonly agreed that a major cause of the Great Depression was tightening the money supply too quickly.
2. Although, there have been hints of “tapering,” unemployment remains stubbornly high and inflation (based on Gov. numbers) is below the 2% target.
3. After shorting Treasuries years ago, I think Bill Gross is finally learning not to fight the Fed (sidenote: I would love to see Celebrity Death Match between Bernanke/Gross).
4. I own a few bonds, but I’m not worried too much because I also purchased a fantastic ETF a few months ago which has worked out beautifully. TBT is ultrashort the 20-yr treasury. As long-term rates started to rise as Bernanke spoke in May/June, I saw returns around 20%. (I have also made bonehead decisions and lost money, but I try to forget those 🙂