Thursday, January 19, 2017

Bond Market Bear

A bear market occurs in bonds when interest rates go up. When interest rates go up, bond capital (or what a bond is worth) goes down. The longer the term of the bond the more the bond capital goes down. We have had a very long run bull market in bonds. That is when interest rates go down and bond capital goes up.

I have been expecting a Bond Market Bear for some time. It maybe time now. If this is true, people who hold mutual funds or ETFs with bonds could be in for a real shock. I have no idea why people would hold mutual funds with bonds in them.

Bonds are easy to buy and if you have good quality bonds like government bonds or good corporate bonds, then risk is slight and you will get back your capital if you hold the bond to maturity. People do not realize that the bond market is a lot riskier than the stock market. Bonds are only a safe investment if you buy and hold them until maturity.

If you hold bonds in such things as a mutual fund or ETF, you will lose capital in a bond bear market. You may lose more capital than you can ever recover. The general rule with assets and interest rates is that they go in the opposite direction. That is asset price goes up when interest rates fall and asset price goes down when interest rates rise. This rule can affect all sorts of assets. Bonds are one type, but things like real estate and some stocks are also affected by this rule.

Mark Hulbert wrote an article about Bond Bear Markets in 2014 on Market Watch. Gemma Acton says in a recent article on CNBC that Didier Saint-Georges, a managing director at Carmignac Gestion says that the recent jump in yields does not signal the beginning of a major bear market for bonds. Andrea Wong on Bloomberg says Lacy Hunt one of the few around you experienced the last Bond Bear Market thinks we are not there yet.

On my other blog I wrote yesterday about Toronto Dominion Bank (TSX-TD, NYSE-TD)... learn more. Tomorrow, I will write about Bank of Nova Scotia (TSX-BNS, NYSE-BNS)... learn more on Friday, January 20, 2017 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter.

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