investing in bonds

Featured Story

Muni Bonds: Beware This Major Flaw in Moody's Rating System

By Tara Clarke, Associate Editor, Money Morning • @TaraKateClarke - August 30, 2013

To continue reading, please click here...

Article Index

Muni Bonds: Beware This Major Flaw in Moody's Rating System

By Tara Clarke, Associate Editor, Money Morning • @TaraKateClarke - August 30, 2013

The fallout from Detroit's bankruptcy filing has investors - and even ratings agencies - questioning the validity of the bond rating system.

Now investors need to know if it can be fixed in a way that actually helps those investing in general obligation (GO) bonds.

To continue reading, please click here...

This Could Shake Muni Bonds to the Core

By Shah Gilani, Capital Wave Strategist, Money Morning • @WallStreet_II - August 2, 2013

Editor’s Note: Detroit is more than a sideshow. What’s at stake here is bigger than most investors realize. It could take a Supreme Court decision to determine the viability of many municipal bonds. Regardless of whether you’re a muni bond investor or not, what happens in Detroit will affect you. Shah Gilani has the whole story.

Detroit went bankrupt, but so what?

Its own decades-long gross political mismanagement, corruption and incompetence pushed the city over the cliff into bankruptcy.

Why should we care?

It could change the way investors look at muni bonds. And not for the better.

The largest Chapter 9 filing in U.S. history will reverberate well beyond this once-bustling city and its creditors.

What’s most threatening to muni bond investors, and in fact all investors, is whether the city’s general obligation bonds are secured or unsecured issues.

General obligation bonds, backed by a city’s ability to levy taxes to pay interest and principal, are thought to be the safest of all munis.
Detroit is putting this to the test. Read how this will affect all investors...

These Four Simple Words Are the Key to Your Investment Success

By Shah Gilani, Capital Wave Strategist, Money Morning • @WallStreet_II - February 8, 2013

After 30 years in the market, Shah Gilani can tell you, those words are not “sit on the sidelines”… Here's his advice.

If You're Investing in Bonds, Bill Gross Has a Message For You

By Guest Editorial, Money Morning - February 7, 2013

If you're investing in bonds, Bill Gross just delivered you a serious warning.

Gross wrote in his February newsletter that the factors that contributed to last month's 1% loss for U.S. Treasuries - the biggest since March 2012 - aren't going away any time soon.

Total debt, which includes corporate, government and household, has expanded from $3 trillion in the 1970s to about $56 trillion today, explained Gross. He said that's left bond yields in the 1% - 2% range, instead of the historic level of 3% - 4%.

Gross said the staggering amount of debt in the United States has created a "credit supernova" that could crush the bond market as the global credit bubble "is running out of energy and time."

"Our credit-based financial markets and the economy it supports are levered, fragile and increasingly entropic," Gross wrote.

Gross warned that anyone investing in U.S. government bonds should evaluate their exposure.

And he isn't alone. Jim Rogers and Goldman Sachs have both been bearish on bonds.

"I'm short long-term government bonds," Rogers said Feb. 6 on Bloomberg Radio. "I plan to short more. That bull market, that's a bubble."

So what should bond investors who want yield do with their money?

To continue reading, please click here...

Investing in Bonds: How to Build a Bond Ladder

By Martin Hutchinson, Global Investing Specialist, Money Morning - April 24, 2012

With interest rates at near-record low levels it appears that the only way for rates to go is up.

As the U.S. economy moderately strengthens, that means the bond bubble will begin to leak. Even darker, the bubble might just burst altogether.

The prospect of yet another bursting bubble makes investing in bonds difficult. The same is true for stocks.

After all, stocks tend to underperform when rates head north, while gold will certainly drop back once interest rates begin to rise ahead of inflation (which may take a considerable time.)

However, there is one strategy that enables you to prosper even in this tough environment.

It is called the bond ladder. It works like this...

Bond investing in a rising rate environment can be a terrific way to lose money.

If you buy short-term bonds, the yields may well be less than inflation, causing you to lose money in real terms.

And if you invest in long-term bonds, your immediate yield will generally be higher, but you run a large risk of losing part of your principal as rates rise and bond prices decline.

These losses can be a large multiple of your interest payments.

For example, if 30-year bond yields rise from their current 3.11% to 5.11% over the next year, your principal loss on a 30-year T-bond will be $30 on every $100, far more than the $3.11 you will have received in interest.

Of course, if you hold the bond for the next 29 years you will get your principal back at maturity.

But meanwhile you will have spent 30 years locked into an investment at interest rates below the market, and probably below the level of inflation. Not a wise choice.

Investing in Bonds: Building a Bond Ladder

The problem of investing in bonds then is one of reinvestment. You really don't know at what rate you will be able to reinvest your money when the time comes.

This problem is solved by buying bonds in a range of maturities, from short to long, and reinvesting the proceeds of each investment as it comes due.

For example, you could invest 10% of your money in each Treasury bond maturity from 1 to 10 years.

Then when the first bond came due in year 1, you would reinvest the proceeds in a 10-year bond, so you would again have 10 equal bond investments coming due in years 2 through 11.

Here's a concrete example.

To continue reading, please click here...

Money-Markets, CDs, and Bonds: The Ups and Downs of Stashing Your Cash

By Don Miller, Contributing Writer, Money Morning - January 26, 2012

In today's volatile markets many investors are faced with the same troublesome question - "Where should I park my cash?"

In fact, investors have withdrawn a net total of $328 billion from the stock market since 2007, according to Strategic Insight.

Ever since, a big portion that cash has been looking for a home.

It seems simple enough, but investors are finding the answer to be more complicated than they imagined...

Thanks to our friends at the Federal Reserve, interest rates are at record lows. In fact, they're so low that most investors are getting practically nothing in returns.

Meanwhile, the stock market has put on a New Year's rally, rewarding those who were willing to jump in while leaving cautious investors wondering if they're holding too much boring old cash.

However, in order to have an adequate safety net, your cash on hand should be enough to cover about a year's worth of expenses, according to Shah Gilani, a retired hedge fund manager and Editor of the acclaimed Wall Street Insights & Indictments newsletter.

"That's a good safety net," Shah says.

But no matter how much cash you hold, you still have to balance your need for higher returns against your risk tolerance.

Because whether you're thinking "safety first" or are tempted to reach for a little more yield, the choice you make might determine whether you're able to sleep at night.