|
|
|
|
| BondsOnline.com: instant access to and extensive coverage of over 3.5 million stocks, bonds, indexes and other securities covering major and emerging markets and exchanges across the globe. |
|
|
| Bonds Online |
|
|
| 5/10/2013Market Performance |
| Municipal Bonds |
|---|
|
S&P National Bond Index
|
3.00% |
|
|
S&P California Bond Index
|
2.96% |
|
|
S&P New York Bond Index
|
3.13% |
|
|
S&P National 0-5 Year Municipal Bond Index
|
0.70% |
|
|
| S&P/BGCantor US Treasury Bond |
400.09 |
|
| More |
|
| Income Equities: |
|---|
| Preferred Stocks |
|---|
|
S&P U.S. Preferred Stock Index
|
848.03 |
|
|
S&P U.S. Preferred Stock Index (CAD)
|
636.26 |
|
|
S&P U.S. Preferred Stock Index (TR)
|
1,701.05 |
|
|
S&P U.S. Preferred Stock Index (TR) (CAD)
|
1,276.26 |
|
|
| REITs |
|---|
|
S&P REIT Index
|
174.07 |
|
|
S&P REIT Index (TR)
|
425.30 |
|
|
| MLPs |
|---|
|
S&P MLP Index
|
2,469.58 |
|
|
S&P MLP Index (TR)
|
5,428.50 |
|
|
See Data
|
|
|
|
 |
|
|
|
|
|
|
Is It Time To Short Bonds As An Inflation Hedge? |
gurufocus - June 10, 2011 - By Juan Velasco
I am thinking about shorting investment grade or government bonds, or even municipal bonds which have default risk and, in some cases, terrible balance sheets. Low inflation, huge debt at sovereign and municipal levels and massive use of the dollar printing machine have made those type of bonds a very risky investment. Seth Klarman has bought inflation puts, and Prem Watsa is hedged with the relatively new consumer price index (CPA) derivatives.
Just as before the crisis the credit default swaps were in fashion, now you have new inflation related derivatives coming on the scene. As before you had huge debt in financial institutions off balance sheets, now you have the debt in the government with off-balance-sheet entitlements such as Medicare, and debt owed by Fannie and Freddie — history rhymes. Many bonds are yielding close or less than inflation on nominal terms, five-year interest rates have moved lower to a yield of close to 1.5%, with core inflation running somewhere between 1.5 percent and 2 percent, as soon as a bit of inflation comes they will drop. The risk is that the crisis continues and people continue buying them as a safe haven even if they get nothing out of them. Another risk is that we have deflation like Japan, but I think that's very unlikely with all of the debt and money printing going on.
So as a hedge I am planing on shorting some bonds. The good thing is that it is basically impossible that they go up much more and make me lose more than I could stand. The iShares ETF AGG is at 107.5 now and yielding 3.3% only, as low almost as ever. That is why even Google (GOOG) is issuing debt for the first time even though their net cash position is way more than 30 billions. Seldom has money been so cheap. The 20 year Treasury Bond Fund (iShares TLT ETF) is also yielding basically nothing, less than inflation on nominal terms, and are very sensitive to inflation due to their long term.
Here is a how the hedge can be carried out in practice by a retail investor:
Some bond yields are already at historic lows yielding on real terms less than inflation. So if you believe there will be inflation the yields will go higher due to a pick up on interest rates to control inflation and the value of the bond will fall. Actually just with rising inflation expectations they fall, since money exposed to inflation is worth less, especially when it is money due in the long term. So even if the yields go just a bit higher, the face value of the bond will drop, making you earn money on your hedge. The TLT (20 year treasury) ETF can be used for this by the retail investor.
I'll illustrate the bond sensitivity to inflation with an oversimplified example:
The TLT ETF @97.26 is yielding 4.2% which corresponds to a annual coupon of 4.08 dollars that you receive, if you are long, in the form of dividends every month. Conversely, if you are short, you pay for that coupon/dividend to the person who lent you the ETF.
For the complete article.
|
|
|
|
|
|
| Partner Market Place |
|
|
|
| Stuff to look at |
Yield and Income Newsletter: A must have for income investors. subscribe NOW
S&P Commentary and Newsletters: S&P
|
|
| BondsOnline Advisor |
Income Security Recommendation January 2013 Issue.
Keep up with monthly, in-depth coverage of fixed income market strategies, commentary, and insights as seen by our sources. Sign up for the free BondsOnline Advisor now!
Unsubscribe here [+] |
|
|
|
|
|
|
|
|
