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TMFDeej (97.47)

Bonds are on fire. I hopped into the bond market with both feet at just the right time.



May 01, 2009 – Comments (7) | RELATED TICKERS: JNK

Anyone who reads my posts from time to time probably knows that I jumped into the bond market with both feet during the second half of 2008 and early 2009.  The credit markets were so fouled up that I hadn't seen opportunities like the ones that were out there in years.  There were tons of bonds out there for major, blue chip that were in relatively decent financial shape and had tons of assets that sported reasonably short maturity dates (around 7 years or less) and double digit yields at a time when the rates on Treasuries, savings accounts, and CDs were as low as I have ever seen them.

Even though I deployed the majority of my available cash at the time I saw these great deals, I am still adding to my investment account on a regular basis so I frequently run searches for the available bonds to see what sort of yields are out there.  I have noticed that the opportunities that I saw several months ago just aren't there today.  I'm glad that I pulled the trigger when I did.  Despite the fact that the rate on 10-year Treasuries has steadily risen from around 2.5% when the Fed announced that it was going to start buying them to its current 3.12%, the yields to maturity on corporate bonds have been steadily falling.

While this is bad news for investors who are looking to scoop up some of those juicy yields, it is very good news for the economy.  It means that the credit markets are functioning much more normally.  Companies that were unable to sell bonds at reasonable rates a couple of months ago have access to capital today.  The most amazing part is that corporate bonds are rallying in the face of two of the largest bankruptcies in ages, Chrysler yesterday and possibly General Motors very soon.

This rally in bonds is not just for the "investment grade" (HA, whether a company's debt is investment grade or not is just based upon the opinion of the buffoons at the ratings agencies...but the ratings matter to Mr. Market so you have to pay attention to them) bonds, but for junk bonds as well.  Junk bonds posted their best single month ever in April, climbing 9.4%.  Prior to last month, the best monthly return for junk bonds was 8.68%, which happened back in February 1991.  Despite a worsening economy and a number of corporate bankruptcies, junk bonds have risen 15% YTD.

I knew that the yields that I was seeing out there were out of whack.  After years of underestimating the risk of default and providing investors with paltry yields, Mr. Market went full circle and was now overestimating the risk. Some of the bonds that I scooped up expire soon, while others don't mature for a number of years.  A lot can happen with interest rates between now and then, but I am content to sit on the investments that I made and enjoy their near (some over, some a little under) double digit yields until then.

Of course, by investing in bonds when I did, I missed out on a huge rally in the stock market.  Having said this, I think of myself as more of a longer term investor than a trader.  Short-term trading has never been my area of expertise.  This probably negatively impacts my CAPS score somewhat.  Oh well.  Given the fundamentals, I would be absolutely shocked if this rally in the major indices sticks.  If I'm right, these phantom capital gains that many investors are sitting on in stocks will disappear, but my juicy yields and real interest payments will stick around for a while.  If I'm wrong, it doesn't really matter because I am not short anything in real life and very few things here in CAPS.

Junk Bonds Rally

Corporate Credit Markets Headed for Best Month Since December

Bond Market Says ‘What Credit Crunch?' With Record Europe Sales


7 Comments – Post Your Own

#1) On May 01, 2009 at 7:58 AM, portefeuille (98.94) wrote:

Has your caps score been much higher in the early days of caps? When did it peak and how high was it at the time? trackjimcramer might enter negative territory today (after more than 4000 calls, almost twice your call count!). It would really be nice to see the score graphs for longer time frames and to compare two players, both different from yourself.

I am surprised the corporate bonds did not gain more in the last few months. They still mirror a much higher (assuming an average recovery rate) or somewhat higher default rate (and smaller than average recovery rate) than does the corresponding equity. 

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#2) On May 01, 2009 at 8:56 AM, alstry (< 20) wrote:

This will reverse out soon.....VERY SOON!!!!!!!!!!!!!!!!  Prepare...don't fear.  You have been warned.

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#3) On May 01, 2009 at 9:25 AM, TMFDeej (97.47) wrote:

Alsty, I appreciate the fact that you read what I write, but it almost seems as though you are stalking me.  I dispute one little claim that you make on your myriad of blog posts, which I rarely have time to read, because you wrote about an industry that I know quite a bit about and boom all of a sudden you become obsessed with me.  Very odd.

It's one thing to comment on someone's blog or article when you have something interesting or informative to add.  It's another to just harass someone for absolutely no reason.


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#4) On May 01, 2009 at 9:29 AM, TMFDeej (97.47) wrote:

Hi port.  Thanks for reading.  Yes, my score has been much, much higher than it is today.  It's difficult to say how high because CAPS limits the length of the performance chart in portfolios, but I believe that I was at lease double my current score at one point.

One of the things that hurt me is that while I am not short a ton of stuff, I am conservatively positioned when the things that are still suffering like banks and consumer discretionary have lead this rally.  It will be interesting to see if it sticks.  I personally am very skeptical.

I completely agree about having the option to have longer performance charts.  I know that people have suggested this to the CAPS crew before.  Perhaps they're working on something.


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#5) On May 01, 2009 at 10:42 AM, TMFDeej (97.47) wrote:

Alsty, seriously go away.  You have taken a debate about the future of auto dealerships in the United States and transformed it into a disturbing personal vendetta. 

Also, stop mentioning my family as you did twice in the previous post.  That's just wrong.

I enjoy debating economic issues, but you really are taking this too far. 

I have commented on your blogs perhaps twice or three times ever, the most recent one with a serious debate of the facts while you come to mine every single day.  Believe me, I won't make the mistake of ever intentionally interacting with you again.  If your intention in repeatedly harassing me, making crude comments, and and talking about my family was to stop any sort of questioning of your assumptions in the future you've clearly won.

This exchange is literally is the biggest waste of time I have ever seen.  It's beneath me and it's beneath this site, which I care very much about.  Just stop it already.

If you really think that I am too tightly wound then I am very unimpressed with your analytical skills.  I am definitely disturbed by your behavior, but hardly uptight.

Go spend some time with all of your famous friends who are evidently professional athletes and the heads of major corporations (sure) rather than taking about me in some classless, locker room, sort of manner. 

This sort of behavior belongs on the Yahoo! boards, not a respectable community like this one.


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#6) On May 01, 2009 at 10:49 AM, alstry (< 20) wrote:


Don't let me get into your should be stronger than only makes you a weaker trader.

Try to beat my score on CAPs....that is what winning is all about.

You do great work....keep it up.

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#7) On May 02, 2009 at 1:20 AM, Chrisynd (54.21) wrote:


 You make it sound like he was threatening your kids or something...

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