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Risks build in world's largest bond funds

johnNjohnN
in Fund Discussions
https://www.google.com/search?source=hp&ei=h2dSXr3LGYGqsgWXs5SQDg&q=Risks+build+in+world’s+largest+bond+funds&oq=Risks+build+in+world’s+largest+bond+funds&gs_l=mobile-gws-wiz-hp.3..33i299l3.2026.6292..7973...3.0..0.112.377.4j1......0....1j2.......0..0i131j0j46j46i131.i0dLO_JC_6Q

'Ultra-low interest rates and a flood of debt issuance by US companies have led to a silent accumulation of risks in some of the world's largest bond'

Incognito Google search

Comments

  • WABACWABAC
    Just type bond funds into the google news search, and you should be able to get to the article on The Financial Times.

    The thesis of the article is that the corporate part of Bloomberg/Barclays Aggregate is riskier now that it's over half BBB, with lengthening durations:
    Ultra-low interest rates have led to a massive increase in debt issuance by US companies, which has surpassed $13.6tn over the past decade, according to the Securities Industry and Financial Markets Association, a trade body.

    This has been accompanied by a deterioration in the quality of the corporate bonds held by the Agg, with more than half rated as BBB at a time when US companies’ capacity to service their debt from earnings has weakened
    GMO is quoted on the gloomy side:
    “The Agg is a portfolio that has turned prudence on its head,” said Peter Chiappinelli, a member of GMO’s asset allocation team.
    And Vanguard is more sanguine:
    "Expected returns for fixed income are modest, but this makes it all the more important to remember why you hold bonds in a portfolio in the first place - as ballast for portfolio’s equity risk. This hasn’t changed,” said Josh Barrickman, Americas head of fixed income indexing at Vanguard.
    It's just my guess that Barrickman is contemplating the mountains of government debt out-weighing the risks from the corporate side.

    Lots of money wrapped up in mutual funds, and ETF's, that seek to replicate that index. Buying a cap-weighted debt index never has made sense to me. Buying the ETF version makes even less sense.



  • FD1000
    recycling again :-)

    2016 article https://www.aarp.org/money/investing/info-2016/junk-bonds-to-avoid.html In 4 years since 2016 JNK made over 40%.

    2018 article https://seekingalpha.com/article/4190783-is-4-trillion-risk-in-bond-funds 2019 was one of the best years.
  • FD1000
    I "love" GMO forecasts. In 12/31/2010 GMO 7 years forecast (link)
    was that US LC would make 0.4% + 2.5% inflation = 2.9% and US SC would make -1.9%+2.5%=+0.6%. GMO was way off, for 7 years SPY made 13.65% annually return while IWM made “only” 11.65%
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