16 Dec 2014

Bonds Surprise and Delight

While no one expected the yields on bonds to fall materially this year (and remember, falling yields translate into higher prices), some elements of the bond market performance have been perfectly normal. The chart below shows the year-to-date performance of selected bond indexes through Friday, December 12, in blue. The orange bars show the performance of each index since inception of the indexes in 1976 through the end of November,… Read More

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15 Dec 2014

There’s A Sucker Born Every Minute: High Yield Products

A client called me last week and asked if I had seen an exchange traded fund (ETF) with a 20 percent yield. In fact, I hadn’t. The client said that he was sure that the yield was phony since it was so high that it was ‘too good to be true,’ but wondered how the ETF could have such a high yield. Good question. In this case, the product is… Read More

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4 Dec 2014

Perpetual Income

The question about when interest rates will rise has been a big question around here for several years, and we still don’t know. Most investors are worried about rising interest rates and most people, including me, have been very surprised this year to see the yield on the 10-year US Treasury note fall from 3.00 percent to 2.29 percent, as of yesterday. The direction of interest rates matters when you… Read More

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12 Nov 2014

Finding Meaning in the Morningstar Star System

The Morningstar Star system is, by far, the most popular way for individual investors to assess a mutual fund or exchange traded fund (ETF). While the system is fairly straightforward in theory, it can lead to odd, and often confusing results. As always, it pays to understand how the system works to understand what the stars are telling you. The case in point is the Vanguard Total Bond Market funds… Read More

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24 Oct 2014

Anatomy of a Short Squeeze

Although it’s come and gone, I am still thinking about the price spike in the 10-year US Treasury note that occurred last Wednesday. Someone from Blackrock told me yesterday that it was the most volatile day for the 10-year since 1980, which implies that it was more volatile than 99.91 percent of all of those trading sessions. You can see from the chart that all of wilding was in the… Read More

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21 Oct 2014

Lower for Longer

One of the interesting implications of the recent selloff in stocks and rally in bonds is that investors have quickly shifted gears regarding when they think that the Federal Reserve will begin to raise interest rates. Right now, the market expects the Fed to announce that they will end their bond-buying program, known as quantitative easing, at their meeting on October 29th. There has been some scuttlebutt that the Fed… Read More

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15 Oct 2014

Treasury Bond Yield Tumbles

Although there are still a good solid two and half months left this year, the big stories in my mind are set: the horrible performance of US small cap stocks (overseas small stocks are mildly worse than overseas large) and the meaningful drop in US Treasury bond yields. Back in May, I wrote that the Treasury bond market was a bit of a mystery because yields were falling, which is… Read More

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8 Oct 2014

The Outlook for Inflation

Last week, I wrote that REITs and TIPs are relatively pedestrian ‘alternatives’ because they are so commonly used. TIPS, which stands for Treasury Inflation Protected Security, are issued by the government – how could they be alternative? What could be more mainstream than a bond issued by the government? Back in August, I did a write up on REITs and they really are different from traditional stocks and bonds, and… Read More

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29 Sep 2014

Bill Gross, Meet Derek Jeter

When I first saw the headline on CNBC that Bill Gross was leaving PIMCO, I didn’t pay close attention because I assumed it was one of those headlines that didn’t have any facts but asks a provocative question, like ‘Is Bill Gross Leaving PIMCO?’ It’s almost an absurd question, but that’s exactly what happened on Friday after a series of bad public stumbles, some of which I’ve chronicled already (click… Read More

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22 Sep 2014

What if You Called The Bond Market Perfectly?

It’s an interesting question. The ability to call the tops and bottoms with perfect accuracy is considered the “holy grail” of bond market investing. We spend a great deal of effort talking to clients about the risk of trying to make speculative calls – the risk of being wrong of course. Just as an exercise I thought it would be neat to imagine what it would be like if we… Read More

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