Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Corporate Bonds: Long-Term Plays vs. Short-Term Signs

By

Keep them front and center, or just make sure the fundamental story remains the same?

PrintPRINT
Editor's Note: The following was posted in real time on our premium Buzz & Banter. It's being shared here for the benefit of the Minyanville community.

Buzz Op-Ed: Corporate Bonds
Minyan James Kostohryz, 1:20 p.m.

If I were asked, one major suggestion I would make to investors right now it would be this: Put the corporate bond market indices up on your screens.

Although they are imperfect gauges, you can take a look at LQD, HYG and JNK.

Moves in the bond market tend to be very long and tendentious and I would suggest that the corporate bond market is in the early phase of a very big, game changing move that is going to have a tremendous impact on the equity market – particularly stocks leveraged to the availability of credit.

Take a look at the action in those corporate bond indicators for the past couple of days. The corporate bonds are rallying intraday even when the equity market is tanking. This sort of divergence may be an early sign that major buyers are stepping in.

The huge liquidity injection by Fed and Treasury programs is going to be pushing money out onto the risk spectrum. As fears of Great Depression II subside, and people realize that banks and the other big holders of corporate paper aren't going into disorderly liquidation, many institutional investors will begin to gravitate out of T-bills and Treasuries that are yielding below the cost of capital and will move into the very juicy yields that corporate bonds are offering. Indeed, on a relative historical basis, corporate bonds are cheaper than equities right now so many asset allocation models will drive purchases in that direction.

Progress in the corporate bond market is probably the single best indicator of whether the equity market has another major leg up. Keep an eye on it.


Corporate Bonds
Professor Bill Feingold, 3 p.m.

I applaud Minyan James Kostohryz's earlier buzz suggesting following certain ETFs to track the performance of corporate bonds.

But the beauty of owning bonds -- and yes, this is going to sound a bit scary, like the repeal of mark-to-market for long-term holders -- is that you don't have to watch tick by tick. In fact, you're better off with a certain casual indifference.

A bond needs to be checked once in a while to make sure the fundamental story isn't drastically changed. Frankly, many of them are in this world. But the idea of buying and holding and clipping coupons still has some real merit.

When you mix that with the upside of stocks, you get convertible bonds.

And sometimes those end up being terrific long-term investments.

There needs to be a collective effort to make it easier for individuals to buy corporate bonds, including convertibles.

I'm working on it.



In memory of our fallen friend and trusted colleague, Bennet Sedacca, 100% of the donations made to the RP Foundation through April will be channeled to philanthropic endeavors consistent with the RP mission, working closely with the Sedacca clan in the distribution of those funds. We thank you kindly for your support as we strive to effect positive change in the lives of children.
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE