| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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'Franken-Bonds': Bonds That Behave Like Stocks? |
Seeking Alpha - Feb. 16, 2011 - by David Ott
Regardless of your current views about the stock market or interest rates, you probably accept the basic premise that stocks have a lot of risk and high potential for return, while bonds aren’t volatile but offer little in the way of returns.
In general, I have always viewed the stock allocation as the place to take risk, where the risk of loss is high, but the return opportunity is also very high. I have viewed the bond allocation as the ballast in the portfolio, earning slow and steady returns.
Clients tend to understand this as well. During the financial crisis in 2008, clients weren’t happy about losses on their stock investments, but they understood that is part of the deal. We had some preferred stocks that lost ground and clients were very distressed to lose money on the "safe" side of the house.
Given that the Federal Reserve has maintained a Zero Interest Rate Policy (ZIRP) for more than two years, investors are seeking in-between strategies like convertible bonds, junk bonds and emerging market bonds.
Convertible bonds are generally issued by companies with poor credit characteristics and offer the option to exchange the bond at the option of the holder into a specific amount of common stock as an enticement to purchase the bond. Junk bonds are also issued by poorly rated companies although they don’t have a conversion feature and are considered non-investment grade, which prohibits their purchase by many institutional investors.
Emerging markets bonds are bonds issued by countries in the developing world such as Russia, Brazil and Turkey. They typically offer higher yields to compensate for the relative instability of the issuing country.
Today, there are ETFs following each strategy:
Convertible Bonds: CWB
Junk Bonds: JNK, HYLD, HYG, PHB
Emerging Market Bonds: EMB, PCY, EMLC, ELD
Although the index history for these strategies isn’t as lengthy as many traditional stock and bond indexes, the data that we do have is telling.
I was able to pull together data for seven years for each sector and used the Barclays index, except for emerging markets, where I used the JP Morgan Index. This analysis is not appropriate for the two emerging markets bonds funds issued in their local currency, EMLC and ELD.
For the seven years ending in 2010, the annual rate of return was 6.33% for junk bonds, 6.54% for convertible bonds and 9.10% for emerging market bonds. By comparison, the Barclays Aggregate bond index returned 5.10% and three-month U.S. Treasury bills earned 2.19%. In this regard, two of the three sectors acted like bonds, earning returns in the mid single digits, but notably higher than the Aggregate to compensate for the additional risk.
Unlike the Aggregate, though, the volatility for these sectors was off the charts for bonds and higher than stocks in two cases. Using annual data, the standard deviation was 12.25% for emerging markets bonds, 20.16% for junk bonds and 25.17% for convertible bonds. For comparison, the standard deviation was 1.56% for the Aggregate and 20.29% for the S&P 500.
For the complete article.
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Income Security Recommendation January 2013 Issue.
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