Bogleheads

[3CT_Paddler]

Hear is a short article from Bloomberg on the current bond bubble and risks we are facing... http://www.bloomberg.com/apps/....GAssrewg9I

I thought this quote was on the money...

[TJAJ9]

That's why people should simply stick with high quality bonds. Junk bonds are never worth it, IMO.

[dumbmoney]

By the time everyone "trusts" the rally, we'll be ready for another bear market.
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I am pleased to report that the invisible forces of destruction have been unmasked, marking a turning point chapter when the fraudulent and speculative winds are cast into the inferno of extinction.

[Sam2]

In "Notes from the Bogleheads-8 Reunion" Bill Bernstein said "... consider Vanguard's Corporate Bonds ETF."

Sam

[stratton]

[CaveatEmptor]

The spectacular returns of junk bonds have occurred because of the default rate being around 10% (they were priced for a much higher default rate back in the dark days of November 2008, and as if that default rate would last forever).

[nisiprius]

Please, lets not muddy the waters by mixing up "junk bonds" and bonds. The characteristics of a bond, specifically its perceived safety, come from the fact that they are a contractual promise to pay a specific amount at a specific time, and the fact that for investment grade bonds it is expected that the promise will almost always be kept--defaults will be so rare as to have only a tiny effect on a diversified portfolio.

That's not true for junk bonds, so junk bonds are a whole 'nother asset class from investment-grade bonds. Investment-grade bonds, junk bonds, James Bonds, Barry Bonds, not the same things.

I do not understand the motive for financial writers to be constantly confusing the issue. Investment-grade bonds are not junk bonds. Investment-grade bonds are not stocks. Bonds may very well be overvalued, but investment-grade bonds are not yielding equity-like returns, investment-grade bonds do not pose equity-like risks, and if there can be said to be a bond bubble it is not like a stock bubble.

The yellow line is the NASDAQ. At the left end is a collapsing bubble. The black line is the share price of the Vanguard Total Bond Market Index Fund, i.e. the Barclays Capital Aggregate Bond Index. The left end of the yellow line, the right end of the black line, you tell me: do they look the same to you?


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Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

[TJAJ9]

[Eureka]

[spam]

In discussions about bonds, there is always confusion about the distinction between an individual bond and a fund. Also, there is confusion between holding a individual bond to maturity and selling it on the secondary market as though it were a fund. The discussion always seems to ignore the strengths of each type of investment by assering equality regardless of behavior.

Take this quote from the Bloomberg article for example:

[jeffyscott]

Investment grade bonds were offering equity-like returns at the yields of a year ago. They have, in fact, generated equity-like returns. For example vanguard long term investment grade has a 12 month return of 29%.

Given that stock prices have risen to the point where the future returns may well be 5-6%, corporate bonds may still be offering equity-like returns.

High yield bonds certainly seemed to also be worth buying more of a year ago and have had equity-like returns. My high yield fund is up 36% in the last 12 months. I don't know if the longer term returns have been "equity-like", as it's 6.3% over 10 years is far different from the S&P 500's -1% .
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Jeffy

press on, regardless - John C. Bogle

[Eureka]