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All our recent discussions on equity valuations, etc. and the stock market's vulnerability but what about bonds? Looks like lower highs and lower lows since the top (low in yields) earlier this year. Just like last year caught everyone by surprise with declining yields, this year appears to be doing the same but in reverse.
I would agree that Treasuries could be in a bear market. TLT, as a proxy for long-term Treasuries, is down about 15% from its high about February 1. Meanwhile, the high-yield market seems to have hit a high about March 1 and since then has gone nowhere to down, depending on which fund or ETF I'm looking at.
As a bond investor, I don't see anything that looks very good right now. Lately I've considered shorting Treasuries via RRPIX, although a correction in the stock market would likely cause treasuries to reverse upward. I own high-yield funds, which I'll hesitate to sell if junk starts to tank and instead could hedge these with RYIHX.
Junkster: What do you think of hedging as a strategy for high-yield? My thinking is that if the NAVs of my junk funds fall, hedging with RYIHX should mitigate those NAV losses while I continue to collect the dividends from the long funds.
Frank, at least for me I was never fond of hedging because you have two decisions instead of one, i.e. when to lift the hedge. The junk funds have been flat but on a total return basis made all time highs as recently as Friday. After the close today I will be anywhere from 40% to 50% in cash (15% now) Will be watching how OSTIX handles the selloff because would like to go there. Since 12/08, there has always been a place to hide in bondland. My fear has been what happens when there is no place to hide. Bank loans may shine someday but haven't seen much from them yet. Friday's employment report should prove interesting, especially for Treasuries. I need a little under a 1.50% annual return to not have to touch my principal so may just kick back and watch for awhile. This in and out get tiring for this old trader. Then again, doubt I could ever just sit back and watch if something is moving in Bondville.
Edit: While the junk ETFs ala JNK and HYG are seeing higher than normal % declines today, noticed the SJNK is unchanged and on extremely heavy volume. SJNK is the short term junk ETF. Looks like many on moving to the shorter dated junk.
Thanks for your comments, Junkster. OSTIX seems to have held up better than other junk funds today. I see that it held up well even during the late 2008 rout in the markets. This might be a fund to buy and hold.
Frank, one of my junk hybrid funds (just exchanged into yesterday) was actually up today - RIMOX. I may have to increase there. The rest of the open end held remarkably well but sometimes there is a one day lag effect. So we shall see tomorrow.
Comments
As a bond investor, I don't see anything that looks very good right now. Lately I've considered shorting Treasuries via RRPIX, although a correction in the stock market would likely cause treasuries to reverse upward. I own high-yield funds, which I'll hesitate to sell if junk starts to tank and instead could hedge these with RYIHX.
Junkster: What do you think of hedging as a strategy for high-yield? My thinking is that if the NAVs of my junk funds fall, hedging with RYIHX should mitigate those NAV losses while I continue to collect the dividends from the long funds.
Edit: While the junk ETFs ala JNK and HYG are seeing higher than normal % declines today, noticed the SJNK is unchanged and on extremely heavy volume. SJNK is the short term junk ETF. Looks like many on moving to the shorter dated junk.