How safe is the Corporate Bond Market for your RetireFund?

Bonds are Safe!  Bonds are where you put your money when stocks begin to swoon!

At least, this is the general consensus after 20+ years of a Bond bull market (and all the marketing info pumped into our heads by the investment community)

However, things have changed in the Corporate Bond Market, (and treasuries) and not for the good!

Besides al the talk of trade wars, and the coming worldwide Debt bomb, Investors already wary of a bubble in Treasuries should also be aware of what is going on in the "Corporate" Bond market now!

There are now over $52 Trillion dollars in Corporate Bond issues, over twice the amount there was in 2008 before the financial crisis. According to a recent Bloomberg analysis, "The duration of (those) $52 trillion of Investment-grade bonds now stands at 7"!

That means, if rates rise 1% these bonds would lose 7% of their market value. A 1/2 % point jump would be 3.5% or a 1.8 Billion dollar loss.

With interest rates near all time lows, after a 20 year bond bull market, it maybe time now to re-evaluate your bond positions, especially if you are nearing retirement.

 Also, if you are considering the U.S. Treasury bond funds, then consider this chart AND the fact that all funds charge a fee, every single year, to hold them.

No one, especially this writer, has a crystal ball, however, if you are in or approaching retirement, in the USA or Canada, then you should pay attention to these developments.

Oh yes, pay down and pay off your own debts. Your Retire Fund will thank you for it!

Signals in the bond market are not a positive sign for the recovery.

Image via Wikipedia

In a recent article in Breaking News, Unhappy Conundrum Edward Hadas sheds some light on this question as he points out that, while the bond market is hard to read, the falling yields in the bond market do not bode well for the immediate future of the American economy and market, no matter what explanation one has for them. In the final analysis, bond holders are creditors who like to keep their sights on the bottom line, as opposed to the more optimistic stock market share holder.

Last fall, during the crash, the junk bond market spread was 22 points higher than treasuries, a number that reflected real fear. Today it is at 10 reflecting less fear, but not the comfort level of 5 which is normal. If you want to take a measure of market sentiment, you ignore the bond market at your own peril.

Couple this information with the spike in gold prices ( see: hedge funds buying gold ) and the fact that, insider selling is increasing at a rate of 30-1 as opposed to buying into this market, and you have some clear indicators there is trouble ahead. Add to that the fact that the "cash for clunkers" program is over, there are still 1.5 million houses backlogged for sale, 40% of home owners will be "under water" with their mortgage by 2011, the American consumer is adverse to buying anything right now, the commercial real estate market is headed for a cliff, and newbie Chinese investors are bubbling their own stock market at this writing.

As I warned in several previous entries, " when everyone else is laughing hysterically and pointing up to the sky " on this roller coaster ride, it will be time to get off. Well, they are not laughing hysterically yet, but some are chuckling, getting giddy, and the bull heads of CNBC have gotten out their pom poms. Hell, even some very smart people are cheering from the sidelines.

I've sold much of my bank stock. Have kept some small companies with great upside, and I have bought a gold stock this week that I believe has great upside. Now don't get me wrong, I'm not a wimp. I am a realist. In many ways, I hope I am wrong. I just don't believe I am.

Now, what have you done with your portfolio as the Witch of October approaches? Hopefully you are watching over it like a mother hen, and have not given it to some uninterested money manager who is concerned with his own portfolio. Get a good investment adviser and always sit down with him/her every few months to go over your portfolio.

After all, would you let some stranger have complete control of your home while you were living in it? Your investments are "yours" so look after them.

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• Breakingviews.com: Ominous Signals From Bonds Data (nytimes.com)
• Bonds pare losses (money.cnn.com)
• What next for corporate bonds? (telegraph.co.uk)
• What's next? Ask the bond market (money.cnn.com)
• Bonds lose ground on stock rebound (money.cnn.com)
• Uh oh. Gold's near $1,000 (money.cnn.com)
• U.S. consumer sentiment hits four-month low (dailyfinance.com)