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A Barclays Wealth manager advises buying corporate bonds or dividend-paying stocks, instead of...

A Barclays Wealth manager advises buying corporate bonds or dividend-paying stocks, instead of Treasurys that pay negative real yields and carry "all the risk." He sticks with a buy-low, sell-high approach to bond buying saying, "Either the lower end of investment-grade or the high end of high-yield, especially double B, is just really cheap." Will junkier ETFs like HYG, JNK, PHB, HYLD be safer plays than TRSY and PLW?
Comments (5)
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    May be this manager should take a look at the performance of US Treasuries during economic crises. He would be less likely to make a fool of himself.
    20 Sep 2011, 02:59 PM Reply Like
  • klarsolo
    , contributor
    Comments (706) | Send Message
     
    Did those US Treasuries already trade at sub 2 % for 10s when those economic crises hit? You are looking at really limited upside here, compared to a lot of downside in case the already priced-in crisis does not materialize.
    20 Sep 2011, 10:55 PM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    I went for an unrealized profit of $3,500 on the Vanguard Extended Duration ETF close-of-business yesterday to $17,112 close-of-business today.

     

    And that surge came as other investments of mine were falling - an example of the diversification power of US Treasuries.
    21 Sep 2011, 04:18 PM Reply Like
  • sirkyrik
    , contributor
    Comments (3) | Send Message
     
    While it is true that high yield is volatile the yield at over 10% for JNK as opposed to 3.4% for a 30 year treasury is tremendous. Plus there is a tremendous interest rate risk to long term treasuries. If interest rates on long term treasuries go up the underlying value of your treasury decrease rapidly. The exact opposite of a bond market rally. With interest rates at 50 year lows I think that the greater risk is that interest rates will rise in the long term than go even lower.

     

    Since high yield bonds are short to medium term in nature there is less interest rate risk. I bought JNK in May and June of 2009. If there were another shock to the economy causing another generational low like what happen in March 9, 2009 I would buy more not less JNK.
    20 Sep 2011, 03:56 PM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    You're completely missing the point.

     

    Treasuries provide unparalleled diversification. Long term Treasuries enjoy a very strong negative correlation during crises with equities and commodities. Today the Vanguard EDV ETF was up 6%.

     

    Consequently, my portfolio, which has a strong concentration in commodities and small caps was stable.

     

    It's not the yield. It's diversification.

     

    And let's get real about junk bonds - they act like equities.

     

    In contrast, high yield municipal bonds do not act like equities and they offer higher tax equivalent yields.

     

    You can have JNK at a taxable 8% or HYD or HYMB at a non-taxable 6%.

     

    And the variance of HYD or HYMB is a fraction of JNK's.

     

    JNK may make sense in a tax protected account. In a taxable account, there are better options.
    21 Sep 2011, 04:25 PM Reply Like
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