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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Edscharp who wrote (7286)	1/5/2006 10:28:27 PM
From: Casaubon	Respond to of 33421

all you really need to know about bond investing: -inflation destroys the value of your bond -bond price moves inversely to yield

To: Edscharp who wrote (7286)	1/5/2006 11:23:03 PM
From: Chip McVickar	Read Replies (1) \| Respond to of 33421

Edscharp, Lets first take a look at the simplest 101 aspects of bond investing. One buys a bond with a given interest rate for a set period of time. You hold that investment over the time duration and your principal plus interest is returned. Two negatives: 1... Quality of the issuer -- [will your investment be returned] 2... Amount of inflation -- [what will it buy upon return] It's That Simple Beyond this simple exchange the subject becomes very complex. "The gap between the yield on two-year and 10-year Treasury notes, known as the benchmark yield curve, disappeared by late December, with the yield on the 2-year note having risen above the 10-year. Known as the inversion of the curve, the phenomenon is rare in the bond market and in the past has signaled a recession." How the large players in the bond markets use this rare event, will effect all investors in every market. Here's the 30 year bond chart for price: stockcharts.com[w,a]maoannay[d19900115,20061022][pf][iLb14!Lh14,3!La9,21,6][J66204233,Y]&pref=G Here's the 30 year bond chart for yield: stockcharts.com[w,a]maoannay[d19900115,20061022][pf][iLb14!Lh14,3!La9,21,6][J66206021,Y]&pref=G Perhaps in todays situation, taking some risk for higher yields with short time duration is a resonable answer...? Lets keeping adding to this discussion... I'll look for some books. My Best, Chip

To: Edscharp who wrote (7286)	1/11/2006 12:53:43 PM
From: Chip McVickar	Read Replies (1) \| Respond to of 33421

Edscharp, Looked through my library… I don't have any books directly related to bond investing, so what I've learned has been picked up over the years as I've investigated bond vehicles. I'm not a professional, so please use my thoughts as conversational knowledge sharing… NOT investment advice. Okay, a further look at quality: Message 22032610 1... Quality of the issuer -- [will your investment be returned] There is no risk free investment in bonds...!!! Any issuer can default, even US Treasuries. But treasuries remain the safest within our bond choices today, (gold bugs would argue here), followed by short-term CD's, then issues backed by municipal governments and perhaps certain electric and water utility companies, but this has changed with deregualtion. The most cost effective way to purchase treasury bonds is through the US Government, which I believe can now be done directly with the Federal Reserve Banks by setting up an account either in person, by mail or internet. federalreserve.gov Higher the yield one seeks will influence the risk on return, with high yield junk bonds being way up, along with certain government bond issues like Argentina, etc. Corporate bonds also hold their own special risks as recently shown in Enron and GM. There are recent additions to risky bond vehicles. 1... Mutual Funds that use leverage to market time bond directions Example: Rydex Juno Fund (RYJUX) finance.yahoo.com ProFunds Rising Rates Fund (RRPIX) finance.yahoo.com 2…Closed End funds that may or may not use leverage to improve returns (look carefully) Example: Pimco Corporate Opportunity Fund (PTY) yield: 9.6 % finance.yahoo.com Eaton Vance Tax Advantaged Global Dividend Income Fund (ETG) yield: 6.6 % finance.yahoo.com Loss of Principal: Bonds gain and lose principal based on movement of interest rates and what aftermarket buyers and sellers are willing to pay for them. By holding an individual bond for duration and delivery… you get what has been determined. By seeking to take advantage of bond price fluctuations for better returnds, one enters another world of investment concern, as bond holdings lose and gain principal value as interest rates vary. This is particularly important when buying mutual fund bond funds, one can lose lose principal if choices are wrong. The market in buying and selling bonds based on their perceived value accounts for a significant fluctuation in bond prices due to speculation and market timing of the players, (not the only one as in carry trade). Because of this fluctuation of value, any substantive investment in bonds vehicles, beyond direct purchases, requires an ability to market time interest rate movements and the overall demand for the bonds. Even after becoming familiar with the basics in bond investing – with bond yields – and bond vehicle risks… we cannot totally eliminate the effect of macro economic impulses wrecking havoc with well laid out bond investment strategies. Perfect example is Bill Gross the famed bond manager, who has been wrong for a couple of years, based on his well seasoned “Thoughts” on where the economy and risks lay ahead. pimco.com pimco.com My Best, Chip