What are the safest Bonds after US Treasury Bonds

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JimTaylor33
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What are the safest Bonds after US Treasury Bonds

Post by JimTaylor33 »

I have read that the absolute safest bonds are US treasury bonds, and are considered the risk free return. Is there any other bond that can come close to staking up in low risk? International, Corporate? Thanks.
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Re: What are the safest Bonds after US Treasury Bonds

Post by LadyGeek »

Welcome!

The OP has a question about bonds for his portfolio here: Bonds for the Permanent Portfolio
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Re: What are the safest Bonds after US Treasury Bonds

Post by lack_ey »

Treasury bonds have plenty of risks with respect to interest rates and potentially inflation.

If you mean credit risk, as is commonly in this context, then several other sovereign government bonds (e.g. from Germany, Switzerland, etc.) are probably slightly safer, with others in around the same range. Check credit ratings from the agencies, credit default swaps rates, etc.

AAA-rated municipal bonds are probably similar in quality, some of them maybe possibly better? Not corporate bonds, certainly not investment-grade corporate bonds broadly (elsewhere you mention Vanguard Intermediate-Term and Long-Term Corporate Bond Index—absolutely not these).

It's hard to quantify, analyze, and compare very low risks.
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Re: What are the safest Bonds after US Treasury Bonds

Post by JimTaylor33 »

Thank you for your response. Yes credit risk is what I am most concerned about. That is interesting to hear that germany and the swiss may be on the same level or better than US. Good to know, I have never thought of that before. I guess that is why their yield is priced lower than the US right now, makes sense.

About the corporate bonds, even if it is a really strong company that has international business all over the globe would that maybe have lower credit risk because it isn't dependent on one country for business? I always assumed in general corp bonds are riskier, but I am just curious if there is ever a situation in which they beat government bonds for credit risk / safety.
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Re: What are the safest Bonds after US Treasury Bonds

Post by 9-5 Suited »

JimTaylor33 wrote:I have read that the absolute safest bonds are US treasury bonds, and are considered the risk free return. Is there any other bond that can come close to staking up in low risk? International, Corporate? Thanks.
While not "bonds" exactly, FDIC-insured CDs have virtually no credit risk. Series EE and Series I savings bonds (which are different than treasury bonds but still US Gov't issues) are also highly safe. And as mentioned above, AAA municipal bonds are a great choice in taxable accounts.
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Re: What are the safest Bonds after US Treasury Bonds

Post by whodidntante »

What is your objective? Do you want a higher return with a risk that you can accept?
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Re: What are the safest Bonds after US Treasury Bonds

Post by lack_ey »

JimTaylor33 wrote:Thank you for your response. Yes credit risk is what I am most concerned about. That is interesting to hear that germany and the swiss may be on the same level or better than US. Good to know, I have never thought of that before. I guess that is why their yield is priced lower than the US right now, makes sense.
The yield being lower has a lot more to do with inflation and currency exchange rate expectations. Credit risk priced in should be very low.
JimTaylor33 wrote:About the corporate bonds, even if it is a really strong company that has international business all over the globe would that maybe have lower credit risk because it isn't dependent on one country for business? I always assumed in general corp bonds are riskier, but I am just curious if there is ever a situation in which they beat government bonds for credit risk / safety.
It's hardly shocking if a very strong multinational eventually goes poof or at least needs to restructure some debt. Times change.

Now, are there maybe some corporate bonds out there that might be safer than the government bonds of the same country? Maybe? I wouldn't be too surprised. But not likely safer than the governments perceived to have the lowest risk.
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Re: What are the safest Bonds after US Treasury Bonds

Post by anoop »

Once you go to international bonds, there's also currency risk.
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Re: What are the safest Bonds after US Treasury Bonds

Post by dbr »

LadyGeek wrote:Welcome!

The OP has a question about bonds for his portfolio here: Bonds for the Permanent Portfolio
The answer here as well as there is that there is no motivation to hold something other than Treasuries for the purposes described by the OP. It is possible to dance on the head of a pin about bonds more or less forever. It is also true that small changes make small differences, so why bother? If you want big changes, then you aren't doing what you set out to do.
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Re: What are the safest Bonds after US Treasury Bonds

Post by nisiprius »

There's no such thing as absolute safety.

The "safety" of Treasuries is based on credit risk, which means the chances of default. A bond is a promise--with Treasuries, and many other bonds, it's a contract to pay specific numbers of dollars on specific days. We can talk about the chances that the bond issuer will keep that promise. That's the "credit quality." Bonds that are rated "investment grade" are supposed to have good enough credit quality that we can almost ignore the chance of default, particularly in a bond fund that holds many different bonds.

If you assume that the US financial system doesn't collapse completely, with the dollar becoming valueless, then it is hard to say which is safer: Treasuries or bank accounts.

If you are concerned about the possibility of the US financial system does collapse, you want to be careful, because while it could certainly happen, I don't think there's any cheap or easy way to protect yourself--and lots of people playing to the (justifiable in some sense) fears by promoting products or strategies that might not work, or might have risks of their own.

Bond ratings for "sovereign bonds" are a little different from those of corporate bonds. For a corporate bond, the ratings agency can look at the company's business, its assets, its cash holding and guess at some margin of safety. For a whole country, the judgements of the ratings agency are much more subjective, and depend on politics and guesses as to how governments will act. Nevertheless, on the face of it, S&P rates US Treasuries AA+ and the other three rate it AAA, the highest possible rating, so, on the face of it, any bonds from any issuer that have an AA+ or AAA rating should be about as safe--in terms of default.

A problem in thinking about bad US scenarios is that the US is currently so important to the world economy that "when the US sneezes, the world gets a cold." We saw this in 2008-2009. It is hard to imagine a scenario in which the US Treasury would default without imagining global financial chaos.

All bonds are subject to other kinds of risk. For example, bonds have a "term" and "mature" at some date in the future. You wait a long time for all of the payments to be made. During that time, there is a risk that things could change, and your bond that looked like a $1,000 value when you bought it must now compete in the marketplace against better bonds paying higher interest. Nobody will pay the full $1,000 for a bond paying 2% if they can buy a new bond for $1,000 that pays 3%, so you must cut your price in order to sell it. Your bond has lost value. The market value of your bond, even if it has perfect credit quality, will still fluctuate.

The less time before the bond matures, the less interest rate risk their is. Often, the "riskless asset" for hypothetical discussions is the 30-day "Treasury bill." In most cases, the best FDIC-insured bank savings accounts will pay about the same as Treasury bills, and they are, as I say, as safe as anything gets.

Obviously there is inflation risk. You pay $1,000 for a bond now, it pays interest and then ten years later it pays back your original $1,000, but maybe by the time it pays it back, $1,000 won't buy much.

With foreign bonds there's currency risk. Back around 2008 or 2009, the dollar had been weakening for about seven years against other currencies, and some people thought it was silly to imagine it could strengthen again, but, of course, it could and it did. Right now, € 1000 are worth about $1080. If you pay $1080 to buy a bond that will pay back €1000 in 2027, by the time 2027 rolls around those € 1000 Euros might only be worth $850, not the $1080 you paid.

With all investments there is liquidity risk. It does no good to argue that some investment is "worth" $X if you can't find anybody who has $X and wants to buy it. During normal times we tend to assume there's liquidity. In abnormal times we can be surprised.

Finally, with all transborder investments, if we are not talking about "life as usual," there is what I will call transborder risk. There's probably a real name for this, but I don't know it. It's like currency risk, but more so. It's the risk that a government in trouble will impose currency controls, or limits on moving anything valuable in or out of the country except in tourist-souvenir-sized amounts.

You can see this happening right now in Venezuela, for example, although I'm not up on the rapidly-changing details. The bolivar isn't worth much. Unfortunately, if you are a Venezuelna holding dollar investments in the United States, you have a problem because you can't exchange those dollars legally for what they should be worth in a free market. You either have to break the law or accept an artificially low exchange rate. Again I haven't been following this closely, but I'm talking about a dollar official be changeable for $6 when they "should" be worth $150 bolivars... that kind of thing. Creo que este sea corecto, pero si tenemos algunos venezolanos leyendo este, tendría curioso aprender los detalles actuales.

To say this briefly, and hopefully not get drawn down the ideology rabbithole, gold is safe in the sense that there are cases of national currencies becoming worthless, but it is unlikely that gold will become totally worthless. However, gold is risky in the sense that its value fluctuates--wildly--and there's no guaranty that the direction is always up. In my opinion, $1000 worth of gold is unlikrly become worth $0, but it might very well become worth $500. Or, course, $1,500.
Last edited by nisiprius on Tue Jan 31, 2017 10:41 am, edited 1 time in total.
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Re: What are the safest Bonds after US Treasury Bonds

Post by anoop »

nisiprius wrote: If you assume that the US financial system doesn't collapse completely, with the dollar becoming valueless, then it is hard to say which is safer: Treasuries or bank accounts.
I put them on par. The advantage with treasuries is that one doesn't need to spread the money over different accounts to get FDIC insurance.
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Re: What are the safest Bonds after US Treasury Bonds

Post by nisiprius »

anoop wrote:
nisiprius wrote: If you assume that the US financial system doesn't collapse completely, with the dollar becoming valueless, then it is hard to say which is safer: Treasuries or bank accounts.
I put them on par. The advantage with treasuries is that one doesn't need to spread the money over different accounts to get FDIC insurance.
I put them on par, too. However, just to play fun bull-session thought games, FDIC-insured bank accounts are, mostly, useful to individual citizens, and not to institutions that need to find a safe place for billions of dollars... particularly overseas institutions. Therefore, one might imagine a situation in which a government might feel that it needs to keep its promises to overseas investors holding gigantic quantities of Treasuries, but might feel that it could ask individual bank account holders for a little bit of patience and some time while the provisions of FDIC insurance are modified, just temporarily. I'm not seriously raising this, I'm just playing the game of creatively thinking of black possibilities.

(This was inspired, though, by actual suggestions that have been made that in a crunch, the Treasury might keep its promises on nominal bonds, which are easy to keep because they can be paid in dollars whose value can be inflated away, but selectively default on TIPS).
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Re: What are the safest Bonds after US Treasury Bonds

Post by taguscove »

Good posts already.

The general answer is that for a given maturity term, look for the lowest yielding bonds. Those are deemed by the markets to be the least risky from a credit, liquidity, and exchange rate expectations perspective. In practice, the lowest yielding bonds are bonds backed by credible/stable governments that have the power to print their own currency.

US Treasuries are generally considered the least risky dollar denominated investment. In a societal collapse*, no asset is safe. All financial assets fare particularly badly. Gold, food, shelter, guns, and livestock are historically the assets that retained value. Among these, only gold is easily portable. In a complete collapse/human extinction scenario, all assets go to zero without exception.

*prominent examples: US Great depression, Germany WW1 and WW2, Russian and China revolutions, European conquest of the New World
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Re: What are the safest Bonds after US Treasury Bonds

Post by Valuethinker »

JimTaylor33 wrote:Thank you for your response. Yes credit risk is what I am most concerned about. That is interesting to hear that germany and the swiss may be on the same level or better than US. Good to know, I have never thought of that before. I guess that is why their yield is priced lower than the US right now, makes sense.
You can take part of the market's view of credit risk from the different yields at say the 10 year bond (the most common comparator).

Complicating this is currency.

Nonetheless countries that are *about as* creditworthy as the USA are:

- United Kingdom
- Canada
- Australia (and New Zealand)
- Germany
- (many would argue against Japan)
- Switzerland
- Singapore (barring a major war in SE Asia)
- China (PRC)

There are probably a few others-- I didn't check the S&P or Moody's sites for ratings. It's pretty remote that France, say, would default, but within the EURO currency zone the gold standard is Germany, even if the Euro itself breaks up in some way.

I am pretty sure that Germany and Switzerland are basically as good credit as the USA barring another major war in Europe. The rest I am less sure but Canada if it defaulted would face the risk of US action to recover debts and is totally dependent on US trade. UK should be as good.

Vanguard has an International Government Bond fund which hedges currency risk, so that would be a good alternative to a US government bond fund-- the fund only invests in investment grade developed markets. If something happened to Italy, say, that's only c. 5% of the fund (and Japan is capped at 20%).

Note that the average yield will be significantly lower than US Treasury Bond index fund.
About the corporate bonds, even if it is a really strong company that has international business all over the globe would that maybe have lower credit risk because it isn't dependent on one country for business? I always assumed in general corp bonds are riskier, but I am just curious if there is ever a situation in which they beat government bonds for credit risk / safety.
Governments have powers corporations do not as we are just finding out.

Even Exxon, say, is subject to political risk. And Apple.

That said, big multinationals (Nestle for example) are probably better credit risks than a number of developing countries, *and* certainly than say, Greece (or Portugal). The former of which is again in crisis.

You'd certainly rank most of the world's top 20 non financial multinationals as being ahead on credit rating of countries such as Ecuador, Bolivia, Argentina, Turkey.

I believe Apple was issuing bonds at a lower yield than comparable US Treasuries, but I think that was the novelty/ scarcity value (Apple had redeemed its last bond in about 1997, from memory).
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Re: What are the safest Bonds after US Treasury Bonds

Post by Valuethinker »

taguscove wrote:Good posts already.

The general answer is that for a given maturity term, look for the lowest yielding bonds. Those are deemed by the markets to be the least risky from a credit, liquidity, and exchange rate expectations perspective. In practice, the lowest yielding bonds are bonds backed by credible/stable governments that have the power to print their own currency.
From the bit I underlined below you understand this, but just to highlight it.

Currency risk does confuse things. Germany govt bonds are on far lower yields than US govt. I don't think that is realistically because anyone believes the US is more likely to default than Germany. It's just that the Eurozone is in a slump (although recent numbers have beaten expectations) and the US has had a very long lived recovery (so the Fed is expected to raise interest rates faster than the ECB).
US Treasuries are generally considered the least risky dollar denominated investment. In a societal collapse*, no asset is safe. All financial assets fare particularly badly. Gold, food, shelter, guns, and livestock are historically the assets that retained value. Among these, only gold is easily portable. In a complete collapse/human extinction scenario, all assets go to zero without exception.

*prominent examples: US Great depression, Germany WW1 and WW2, Russian and China revolutions, European conquest of the New World
US Treasuries have inflation risk. Unless you hold TIPS. And you always have taxation risk.

Cormac Macarthy's The Road. The Mad Max movies. The Postman (David Brin). Lucifer's Hammer (Niven & Pournelle).

In those scenarios (as well as the Zombie Apocalypse which we have discussed on many threads here ;-)) then yes guns, ammunition, food, pharmaceuticals, car parts, tools, batteries etc. But most importantly a community which can be organized and defend itself (in Lucifer's Hammer it's a valley in California, and a scientist who knows how to make weapons). If you have these things, and you are not allied with the forces of law and order, they will simply take them from you.

Setting aside natural or environmental catastrophe, or nuclear war, then the sorts of things one has to watch out for are:

- hyperinflation a la Argentina (Israel, Turkey, Brazil have all been through it)
- economic populism a la Chavez's Venezuela, which has brought the country to the edge of economic collapse -- Mugabe's Zimbabwe would be another
- system collapse a la former Soviet Union in early 1990s
- debt default a la Argentina 2002 or SE Asia 1997-98 or Iceland 2008 or Russia 1998

All of these events led eventually to some form of inflation, and also massive devaluation and exchange controls. For this reason, Argentines with money keep a chunk of it outside the country-- a Uruguayan bank account, a Miami condo, etc. Russians keep money in Cyprus. Greeks in London and Switzerland, etc.

Mainland Chinese (wealthy) have the same concerns re Beijing and various crackdowns that periodically go on.
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Re: What are the safest Bonds after US Treasury Bonds

Post by Valuethinker »

nisiprius wrote:
anoop wrote:
nisiprius wrote: If you assume that the US financial system doesn't collapse completely, with the dollar becoming valueless, then it is hard to say which is safer: Treasuries or bank accounts.
I put them on par. The advantage with treasuries is that one doesn't need to spread the money over different accounts to get FDIC insurance.
I put them on par, too. However, just to play fun bull-session thought games, FDIC-insured bank accounts are, mostly, useful to individual citizens, and not to institutions that need to find a safe place for billions of dollars... particularly overseas institutions. Therefore, one might imagine a situation in which a government might feel that it needs to keep its promises to overseas investors holding gigantic quantities of Treasuries, but might feel that it could ask individual bank account holders for a little bit of patience and some time while the provisions of FDIC insurance are modified, just temporarily. I'm not seriously raising this, I'm just playing the game of creatively thinking of black possibilities.

(This was inspired, though, by actual suggestions that have been made that in a crunch, the Treasury might keep its promises on nominal bonds, which are easy to keep because they can be paid in dollars whose value can be inflated away, but selectively default on TIPS).
What I would say is this, that if the FDIC defaulted or looked like it would not pay, Congressmen of both parties would find their phones and offices jammed, and themselves and their families stalked everywhere-- home, Washington etc.

So you are really talking about a situation where there is an absolute failure of government and a cessation of democracy.
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Re: What are the safest Bonds after US Treasury Bonds

Post by FIREchief »

nisiprius wrote:
(This was inspired, though, by actual suggestions that have been made that in a crunch, the Treasury might keep its promises on nominal bonds, which are easy to keep because they can be paid in dollars whose value can be inflated away, but selectively default on TIPS).
Where on earth was this suggested?! :confused

Sounds like it's from one of those crazy late night "buy gold" infomercials.
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Re: What are the safest Bonds after US Treasury Bonds

Post by bligh »

taguscove wrote:In a complete collapse/human extinction scenario, all assets go to zero without exception.
However assuming a gradual die off (more likely) vs a cataclysmic instant extinction event, prior to the last man dying, I imagine clean water (alcohol?) + food sources (canned or fresh) and weapons/ammunition would hold their value quite well. :beer
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Re: What are the safest Bonds after US Treasury Bonds

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JimTaylor33 wrote:I have read that the absolute safest bonds are US treasury bonds, and are considered the risk free return. Is there any other bond that can come close to staking up in low risk? International, Corporate? Thanks.
1.) Brokered CD's.

2.) AAA Muni's
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Re: What are the safest Bonds after US Treasury Bonds

Post by nisiprius »

taguscove wrote:...US Treasuries are generally considered the least risky dollar denominated investment. In a societal collapse*, no asset is safe...*prominent examples: US Great depression, Germany WW1 and WW2, Russian and China revolutions, European conquest of the New World
Just to be clear: during the US Great Depression, Treasuries (bonds, bills, notes) were fine. Nor has the US to date yet experienced hyperinflation.

In the fascinating book The Great Depression: A Diary, Benjamin Roth several times expresses regret and not owning Treasury bonds. A detail that I'd never known before was that quite apart from banks failing, many banks that did not fail nevertheless froze withdrawals--you couldn't get your money out. There was a regular market in bankbooks, which could be signed over to speculators willing to hold them until the bank again allowed withdrawals, the prices were published in the paper, and the bankbooks of banks with frozen deposits sold for around $0.25 to $0.50 on the dollar.

(And--I think this is relevant--he accepted the idea of gold backing currency. He frequently laments with Roosevelt administration "inflating" the currency by changing the official price of gold from $20.67 to $35. He initially views with alarm the decisions by European countries to go off the gold standard, and then observes bemusedly that the countries that did so recovered, and the ones that did so earliest recovered soonest. At no time does he ever suggest or mention direct ownership of physical gold, and the prohibition of private ownership of gold is mentioned once in passing, but as of no very great importance).
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Re: What are the safest Bonds after US Treasury Bonds

Post by Valuethinker »

nisiprius wrote:
taguscove wrote:...US Treasuries are generally considered the least risky dollar denominated investment. In a societal collapse*, no asset is safe...*prominent examples: US Great depression, Germany WW1 and WW2, Russian and China revolutions, European conquest of the New World
Just to be clear: during the US Great Depression, Treasuries (bonds, bills, notes) were fine. Nor has the US to date yet experienced hyperinflation.
The Confederate States of America did, however, last 2 years of the war (OK not the USA, but...).

Also I believe the USA did during the Revolutionary War and aftermath, and Shiller found that they had, in fact, issued inflation linked bonds at that time.

So "What never? Well, hardly ever". (Gilbert & Sullivan, as Nisi knows ;-)).
In the fascinating book The Great Depression: A Diary, Benjamin Roth several times expresses regret and not owning Treasury bonds. A detail that I'd never known before was that quite apart from banks failing, many banks that did not fail nevertheless froze withdrawals--you couldn't get your money out. There was a regular market in bankbooks, which could be signed over to speculators willing to hold them until the bank again allowed withdrawals, the prices were published in the paper, and the bankbooks of banks with frozen deposits sold for around $0.25 to $0.50 on the dollar.

(And--I think this is relevant--he accepted the idea of gold backing currency. He frequently laments with Roosevelt administration "inflating" the currency by changing the official price of gold from $20.67 to $35. He initially views with alarm the decisions by European countries to go off the gold standard, and then observes bemusedly that the countries that did so recovered, and the ones that did so earliest recovered soonest. At no time does he ever suggest or mention direct ownership of physical gold, and the prohibition of private ownership of gold is mentioned once in passing, but as of no very great importance).
All great stuff. Thanks.
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Re: What are the safest Bonds after US Treasury Bonds

Post by Valuethinker »

FIREchief wrote:
nisiprius wrote:
(This was inspired, though, by actual suggestions that have been made that in a crunch, the Treasury might keep its promises on nominal bonds, which are easy to keep because they can be paid in dollars whose value can be inflated away, but selectively default on TIPS).
Where on earth was this suggested?! :confused

Sounds like it's from one of those crazy late night "buy gold" infomercials.
My guess it was during the "trillion dollar coin" period. When the US was going to enter a technical default, if not a real one, due to divided politics between legislative and executive. The former president has recently said that those were the worst nights of his presidency.
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Re: What are the safest Bonds after US Treasury Bonds

Post by Fundhunter »

Bonds issued by Federal agencies (like Federal Home Loan Bank, Tennessee Valley Authority, etc.) are generally considered almost credit risk free and have a slightly better yield to compensate for the slightly higher risk. I usually opt for these agency ones (in mutual funds) where I have a choice, as I think the extra risk is so small and I want the higher yield. There are Vanguard funds that are exclusively Treasury (like VFISX, Short Term Treasury) and others that include agencies (like higher yielding Short Term Federal, VSGBX).

On another recent thread there was discussion about the difficulty of getting international bonds in a mutual fund while avoiding the long ones that carry all the big interest rate risk. Easier with U. S. bond funds.
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Re: What are the safest Bonds after US Treasury Bonds

Post by Valuethinker »

Fundhunter wrote:Bonds issued by Federal agencies (like Federal Home Loan Bank, Tennessee Valley Authority, etc.) are generally considered almost credit risk free and have a slightly better yield to compensate for the slightly higher risk. I usually opt for these agency ones (in mutual funds) where I have a choice, as I think the extra risk is so small and I want the higher yield. There are Vanguard funds that are exclusively Treasury (like VFISX, Short Term Treasury) and others that include agencies (like higher yielding Short Term Federal, VSGBX).

On another recent thread there was discussion about the difficulty of getting international bonds in a mutual fund while avoiding the long ones that carry all the big interest rate risk. Easier with U. S. bond funds.
I suspect, with GNMA and the other, that the higher yield reflects the Option Adjusted Spread (OAS) i.e. the greater prepayment or extension risk on the bonds.

This phenomenon is known as Negative Convexity.

Given FNMA and FMAC are under US government control, for all practical purposes I believe their bonds have the same default risk as GNMA bonds.
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Re: What are the safest Bonds after US Treasury Bonds

Post by lack_ey »

Valuethinker, why not use credit default swap (CDS) rates as proxy for credit risk of government bonds rather than yield? Yield contains too much confounding variables of fiscal/monetary policy environment, inflation and growth, etc. CDS rates not perfect either but it should be better, I think.
http://www.cnbc.com/sovereign-credit-default-swaps/

Also may want to check Damodaran's paper.
https://ssrn.com/abstract=2812261
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Re: What are the safest Bonds after US Treasury Bonds

Post by Spirit Rider »

Let me tell you a little story about some what could go wrong, there General Motors bonds.
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Re: What are the safest Bonds after US Treasury Bonds

Post by Valuethinker »

lack_ey wrote:Valuethinker, why not use credit default swap (CDS) rates as proxy for credit risk of government bonds rather than yield? Yield contains too much confounding variables of fiscal/monetary policy environment, inflation and growth, etc. CDS rates not perfect either but it should be better, I think.
http://www.cnbc.com/sovereign-credit-default-swaps/

Also may want to check Damodaran's paper.
https://ssrn.com/abstract=2812261
Thank you.

My understanding of CDS pricing is that it is not actually a good predictor of actual default probability (looking forward)-- too many technical factors in the market.

Nonetheless it's a proxy and probably as good a one as we have.
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Re: What are the safest Bonds after US Treasury Bonds

Post by Michael B »

nisiprius wrote:
Finally, with all transborder investments, if we are not talking about "life as usual," there is what I will call transborder risk. There's probably a real name for this, but I don't know it. It's like currency risk, but more so. It's the risk that a government in trouble will impose currency controls, or limits on moving anything valuable in or out of the country except in tourist-souvenir-sized amounts.

You can see this happening right now in Venezuela, for example, although I'm not up on the rapidly-changing details. The bolivar isn't worth much. Unfortunately, if you are a Venezuelna holding dollar investments in the United States, you have a problem because you can't exchange those dollars legally for what they should be worth in a free market. You either have to break the law or accept an artificially low exchange rate. Again I haven't been following this closely, but I'm talking about a dollar official be changeable for $6 when they "should" be worth $150 bolivars... that kind of thing. Creo que este sea corecto, pero si tenemos algunos venezolanos leyendo este, tendría curioso aprender los detalles actuales.
I think this is better termed a convertibility risk with capital controls. There are really two things happening. The first is a limitation is placed on what you can and cannot buy with your currency. The second is high inflation (which then becomes hyper), because the domestic marketplace cannot satisfy the combination of local needs and available liquidity. To tie it back to the OP and general bond risk, limitations on convertibility - not just transborder or into another currency, but also into hard assets (like gold) or other value preserving instruments, are always a possibility, but by themselves don't mean there is a financial loss. The "risk" or impact is domestic inflation. While it can happen anywhere, it is unlikely in a large economy capable of satisfying most of it's domestic needs.
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