Shortening Sail

Is this the “big one?”

Mortgage rates are up, corporate bonds are yielding more, high-yield debt has spiked, even emerging bond markets have seen large capital outflows. Is this the “big one?” Are bond markets bracing for “bondmageddon,” a Lehman-like moment when everything goes to you-know-where and the markets trade down 30 to 50%?

Don’t count on it. Bonds aren’t equities. There’s a reason why they’re less volatile. Investors who hold individual issues can always hold them to maturity. If they do that, they may suffer lost opportunities, but they won’t see any nominal losses unless there’s a credit event—a default or missed payment. With the economy doing better, that’s less likely now.

Still, market losses from missed opportunities are real losses: the clearing price is lower. But by adjusting their strategy and letting bonds season, investors can limit the damage. Rising rates are like a strong gale to a sailboat. Sometimes you have to reef the mainsail to protect the mast.

Let’s just hope this storm blows over soon.

Douglas R. Tengdin, CFA

Chief Investment Officer

By |2013-07-01T10:04:24+00:00July 1st, 2013|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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