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| 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. |
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| 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
|
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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Yes, There's Even a Risk in Treasuries
Bonds may not keep up with inflation, lose ground |
WSJ.com - August 31, 2009
If you or a member of your family has a lot of money invested in bond funds, you should hear what Thomas Atteberry has to say.
He's a partner at fund group First Pacific Advisors and co-manager of the successful New Income bond fund.
His warning? Investors in long-term Treasury bonds and high-grade corporates run a serious risk of losing money in real, inflation-adjusted terms, over the next few years. They may lose money even before you count inflation.
Why?
The yields on these bonds are ominously low. If they reverted to long-term averages, the prices would tumble. You may end up losing more on the falling price than you could earn from the coupons.
This is a Main Street danger. Many ordinary Americans who have fled the stock market have moved their money into the supposed "safe haven" of bonds instead.
According to the Investment Company Institute, investors this year have so far poured a remarkable $142 billion net into taxable bond mutual funds. By contrast, the amount of new money invested in stock funds has barely matched the amount withdrawn.
Investors seem indifferent to the risks. Right now, 10-year Treasurys yield an anemic 3.47%. Their median over the past 50 years was far higher: 6.21%.
The yield on investment-grade corporate bonds is better. According to the Federal Reserve, the average yield across two benchmarks of these bonds is now about 6%. But even that's well below the average since the late 1950s, which was about 7.75%.
Bonds are like a seesaw: If the yield rises, the price falls. Rising worries about inflation, rising interest rates, or both could cause that to happen.
Atteberry has run the numbers on a few scenarios, and they aren't pretty. If the 10-year Treasury reverts to more typical levels over the next five years, investors will end up making just 1.1% a year over that time. That's before inflation.
A faster move would be even worse. If the bonds reverted to average yields within a year, he says, investors will lose nearly 16%.
Ouch.
The story for investment-grade corporate bonds is only a bit better. If these reverted to their 50-year averages over five years, investors would still make about 3.3% a year. Over one year they'd lose 9%. Again, this is before inflation, and any taxes.
Among the added dangers for private investors is that bond coupons are taxable as ordinary income. Meanwhile, any capital losses have to be used first to offset the lighter taxes on capital gains.
No one knows what is going to happen next, of course. Bonds may not revert to historic averages. If we see persistent deflation, the yields may even fall further and the prices may rise. But it's a question of odds. Those investing in bonds may think they are playing it safe. Instead, they may be taking a bit of a gamble on inflation.
Mr Atteberry's advice right now seems sensible. If you want less volatility and less risk, stick to shorter-term bonds.
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| Stuff to look at |
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| BondsOnline Advisor |
Income Security Recommendation January 2013 Issue.
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