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Bonds have been on a bit of a tear lately, the long bond is down 14.76% over the last 391 days. Bonds are fast approaching a bear market, but as Bespoke Investment Group points out here, the long bond still has a way to go before entering bear territory.
Nevertheless, most pundits and professionals alike, including Bill Gross, agree that the bull market for bonds is over. So if that’s the case, what should you do with your bond portfolio? Well, assuming you have an allocation of 60% stocks to 40% bonds, Vanguard founder Jack Bogle says you should sit tight.
Bogle appearing on CNBC’s “Fast Money”, said.
“I think the 60/40 still holds pretty well,” he said. “I was troubled by it, say, two or three months ago when interest rates got to a frighteningly low level, meaning that the alternative to stocks – that is to say, bonds, which is the only alternative that I think is reasonable, really; the only income-producing alternative that’s reasonable.”
When asked how investors should position their portfolios, Bogle was clear.
“First, I generally disapprove of changing your ratio in the middle of the stream. All these expectations in the marketplace are often kind of confusing and give you bad signals as an investor,” he said. “I would just stay the course at this point.”
So there you have it, no need to mess with your allocation strategy, or dabble in the more esoteric areas of the fixed income market. Just sit back and relax.
Todays Other Top Stories
Felix Salmon: – The bond market’s fear of Summers. – The bond markets have moved dramatically over the past couple of months, and no one really knows why. It seems silly to rule out Summers as one of many possible causes — but with any luck we’ve got over our bad Greenspan-era habit of judging the Fed chairman by the movements of markets. The Fed’s biggest and most important job right now is to get a grip on the unemployment rate — something which has pretty much zero correlation with markets.
Calafia Beach Pundit: – 3 cheers for higher yields. – Ten-year Treasury yields are up 130 bps from their all-time lows, and that’s absolutely great news. Yields are not up because the market is worried about a tapering of quantitative easing. Yields are up because both the market and the Fed realize that the economic fundamentals are improving.
Learn Bonds: – AMC Networks: “Breaking Bad” bonds. – Charles Margolis takes a closer look at AMC networks December bond issue, currently yielding 5.1%.
Bonddad Blog: – Three ways to look at bond yields. – The impact of the Fed’s “taper” on longer term bonds has been one of the big events of the last three months. It is well known that bonds tend to serve as a long leading indicator for the economy (think of it as the “price of money”), but there are several different ways to look at bond yields: (1) whether they are rising or falling; (2) their “real” rates, i.e., their relationship to inflation; and (3) the yield curve, which is the relationship between shorter term and longer term bonds. Depending on how you look at bonds, the story is quite different.
Vconomics: – Pop goes the bond market. – U.S. Treasuries have been a one-way train for the past few months, and it looks like no one other than the Federal Reserve is willing to stand in front of it. China and Japan led an exodus this past June, dumping nearly $41 billion of their combined $2.35 trillion Treasury holdings, accounting for the largest net foreign decline on record (basically neutralizing the Feds bond buying for that month). And with the prospect of less stimulus dominating investors thinking, outflows are likely only going to get bigger. At what point does Bernanke begin to sweat?
About.com: – What to own – and what to avoid – in a bond bear market. – How to Prepare Your Portfolio for an Era of Sub-Par Bond Market Returns.
ETF Trends: – High-Yield ETFs in danger of fifth week of losses as rates rise. – High-yield bond ETFs have dropped below a key technical indicator after four straight weeks of losses as interest rates move higher and punish investors who reached for income with junk debt.
24/7 Wall St: – Treasuries brace for 3-percent 10-year and 4-percent 30-year yields. – It is no secret now that interest rates have risen. Long-term Treasury yields and even intermediate Treasury yields are now perhaps even starting to normalize even with Ben Bernanke and the Federal Reserve keeping Fed Funds down at the 0.00% to 0.25% target rate. The problem that is going to startle longer-term bond investors is that the 10-year Treasury Note is getting closer and closer to 3% and the 30-year Treasury Bond is getting closer to 4%.
FT: – Inflation-linked bonds remain EM blind spot. – Money managers are sifting through the detritus of the emerging market bond rout, looking for bargains. Inflation-linked bonds, a long-overlooked corner of the asset class, might arguably offer one of the more compelling opportunities.
HITC Business: – Is it much better to be in stocks than bonds? – The performance of U.S. equities has far surpassed the debt markets so far this year, and investors are hoping the trend will continue. But do stocks really have that much of an edge over bonds?
CNBC: Bonds claw gains as Fed debate ripples through markets. – Prices for U.S. Treasurys rose on Tuesday after a recent slump left yields at two-year highs, with investors dumping riskier assets around the world to scoop up relatively cheap U.S. government debt.
Trustnet: – Doomsday scenario for bonds is unrealistic. – Investors cannot expect to make high returns from the fixed income market, according to Newton’s Paul Brain, however he says fears over a possible “bond bubble” have been overstated.
HousingWire: – Junk bonds: The penicillin for Fed tapering rumors. – Market uncertainty about the onset of the Fed’s plan to taper its mortgage-backed securities buying spree is apparently pushing investors over the edge, or at least giving them enough chill to search for a new penicillin to ease their ache for attractive yield.
Bloomberg: – Junk-bond yields show U.S. can handle tightening. – Since the beginning of June, bonds with lower credit ratings have done better than ones with higher ratings. This supports the view that interest rates are rising because the U.S. economy’s prospects are improving. While those who worry that the Federal Reserve might endanger a fragile economic recovery may yet be proven right, the evidence is leaning toward the cautious optimists — so far.
WSJ: – Summer sell-off in Treasurys continues. – The summer selloff in U.S. Treasurys has taken the benchmark 10-year note’s yield within striking distance of 3%, though some investors think yields will fall once vacationing traders return after Labor Day.
FT Adviser: – Covenant protections in high yield ‘eroding’. – Kames Capital’s high yield team has issued its strongest warning yet that investors could lose out as the terms designed to shield them from losses get watered down.
Morningstar: – Corporate bonds take it on the chin. – Corporates are likely to struggle during the next few months as investors attempt to anticipate when and how quickly the Fed will taper its asset purchases and the subsequent bond market reaction, says Morningstar’s Dave Sekera.
Pendulum: – Bill Gross’s perspective on the 10-year Treasury. – I have been bearish on bonds for most of the summer. Over this time I have been following Bill Gross and Pimco to understand their view on bonds and, specifically, the yield on the 10-Year Treasury. Earlier this summer Gross seemed bullish on the 10-year, but the tone of his recent statements is different.
Bloomberg: – Insurance ratified as Detroit fuels biggest rally. – Detroit’s record bankruptcy may cost bond insurers more than $1 billion in claims. Yet the filing is also boosting the appeal of guaranteed municipal debt as the companies pledge to cover Motor City investors in full.
Cate Long: – Diluting the MSRB. – The financial crisis opened our eyes to the fact that Wall Street was pillaging America’s school districts and hometowns with inappropriate financial products. The MSRB had been exercising almost no oversight.
Gross: Today I feel less "GUARDED" than yesterday. Is the free press still free?
— PIMCO (@PIMCO) August 20, 2013
Crescenzi: Can 85 indicators be wrong? The Chicago Fed’s CFNAI composite is weak for a fifth month. Faster growth ahead? Show me.
— PIMCO (@PIMCO) August 20, 2013
For perspective: Detroit Schools yields 4.5%, Puerto Rico private placement last week yields 2.685% and California notes yield 0.21%-0.23%.
— Muni Market Advisors (@Muni_Mkt_Advis) August 20, 2013