The only constant in the investment world is change. This basic truth has spread even into the bond world - a corner of the market that has the undeserved reputation for being a bit sleepy and conservative. In just a few short years many basic assumptions that underpinned bond investing have gone up in smoke, leaving investors to figure out what the new normal truly will be. (To get you started on the basics of bonds, check out 5 Basic Things To Know About Bonds.)
Sovereign Default - Not Just a Third World Phenomenon
Defaults on sovereign debt are hardly new; Africa and South America have struggled with them for years and they have long been part of the backdrop of emerging market bond investing. What is new, though, is the risk of these defaults spreading into the developed world and shaking up some of the fundamental assumptions about risk in bond investing.
Although there hasn't actually been a sovereign default in Europe yet (Iceland never defaulted on sovereign debt, and Greece and Ireland haven't yet), many investors feel it is only a matter of time. Even allowing for the reality that countries like Greece, Ireland and Spain were never thought to be as financially strong as Germany or Sweden, this is a fairly shocking turn of events. While the Eurozone will likely stay intact throughout this mess, it has clearly shaken investors and should lead them to revisit their basic assumptions about risk in that region.
To read the full column, please follow this link:
http://financialedge.investopedia.com/financial-edge/0611/A-New-World-For-Bond-Investors.aspx#axzz1QZh0jk00
Showing posts with label bonds. Show all posts
Showing posts with label bonds. Show all posts
Tuesday, June 28, 2011
Wednesday, October 20, 2010
5 Could-Be Bubbles Waiting To Burst
One of the oldest sayings of Wall Street (and one that happens to be true!) is that "there is always a bull market somewhere." In other words, no matter how bad one segment of the market may be performing, there is almost always some unrelated asset that is doing well at the same time. Taking that to its logical extreme, if there is always a bull market somewhere, there are almost always a few potential bubbles emerging. So which markets look like they have heated up to the melting point? (For more, check out The Myth About Market Bubbles.)
1. Bonds
To a lot of people, the current yield on government bonds just makes no sense. These people see the federal budget deficit, the huge debt burden and the risk of a stagflation-type environment of low growth and high inflation, and cannot understand how investors could be piling into bonds. Moreover, there is a strong sense that these artificially low rates are just a prelude to a withering bout of inflation that will smack fixed-income instruments hard.
For better or worse, there are other dynamics at work in the bond market. For starters, banks can make a solid "carry trade" on government bonds - banks take their ultra-low cost deposits and invest them in higher-yielding government securities.
Click below for the full piece:
http://stocks.investopedia.com/stock-analysis/2010/5-Could-Be-Bubbles-Waiting-To-Burst-CRM-VMW-CTXS-LOGM1020.aspx
1. Bonds
To a lot of people, the current yield on government bonds just makes no sense. These people see the federal budget deficit, the huge debt burden and the risk of a stagflation-type environment of low growth and high inflation, and cannot understand how investors could be piling into bonds. Moreover, there is a strong sense that these artificially low rates are just a prelude to a withering bout of inflation that will smack fixed-income instruments hard.
For better or worse, there are other dynamics at work in the bond market. For starters, banks can make a solid "carry trade" on government bonds - banks take their ultra-low cost deposits and invest them in higher-yielding government securities.
Click below for the full piece:
http://stocks.investopedia.com/stock-analysis/2010/5-Could-Be-Bubbles-Waiting-To-Burst-CRM-VMW-CTXS-LOGM1020.aspx
Wednesday, July 7, 2010
Phone Stocks: The New Treasurys?
You do not need to search far to find prophets of doom warning you away from one asset class or another. Normally, I pay no particular attention to this - it is the ongoing differences of opinion between investors that give us a vibrant market, and there is certainly money to be made in finding creative ways to shout "we're all doomed!" on financial TV.
Still, I cannot help but wonder about certain investment opportunities. There are plenty of reasons to be skeptical about the return potential in U.S. Treasury securities, and I wonder if investors can do better for themselves with other instruments. Specifically, I am interested in comparing the investment prospects of government bonds to those of major telecommunications companies.
To read the complete piece, please go to:
http://stocks.investopedia.
NB - in the fixed income world, the plural form of a Treasury bill is typically "Treasurys", not "Treasuries". I'm trying to convince my editors at Investopedia of this detail...
Still, I cannot help but wonder about certain investment opportunities. There are plenty of reasons to be skeptical about the return potential in U.S. Treasury securities, and I wonder if investors can do better for themselves with other instruments. Specifically, I am interested in comparing the investment prospects of government bonds to those of major telecommunications companies.
To read the complete piece, please go to:
http://stocks.investopedia.
NB - in the fixed income world, the plural form of a Treasury bill is typically "Treasurys", not "Treasuries". I'm trying to convince my editors at Investopedia of this detail...
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