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Strategies & Market Trends : The Art of Investing

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Jan 12 4:00 PM EST

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To: kidl who wrote (4739)	7/10/2022 5:49:06 PM
From: Sun Tzu	1 Recommendation Recommended By toccodolce Read Replies (1) of 10744

Look at it from a bond manager's perspective. You have a portfolio of junk bonds, medium grade bonds, and AAA bonds. Your opinion is that we'll hit a deep recession within 6 - 12 months. What should you do? Well, in a recession two things happen: (1) junk bonds default and go bust. And (2) interest rates eventually fall and your AAA bonds go up. So the right thing to do is to dump your junk bonds and buy AAA bonds. Yes, in the short term your junk bonds pay higher yield, but that is not worth the default they will suffer. And your AAA bonds will go up, so your trading losses will be compensated by any loss you have to take on the junk. To a credit company, the customers, ie. you, are the bond issuer. They are in the process of reducing credit on the lower end and/or raise their fees and interest rates (i.e. dumping the junk bonds) while at the same time acquiring quality customers who will pay make their payments and not go belly up - i.e. collect credit worthy clients. And this is why they are contacting you. They are diversifying/adjusting their portfolio with you and others like you.

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