Thursday, July 29, 2010

Interest in Exchange Traded Bonds

I am aware that most people come to this blog wanting to know about exchange traded bonds. If you enter "exchange traded bonds" in the Google Advanced Search box "exact wording or phrase", my gateway post for Exchange Traded Bonds is near the top. If you go to and inquire what is a synthetic floater, my Gateway Post for Synthetic Floaters is the top entry. The same is true for these inquiries: what is aaegon hybrid - Search; "ing hybrid" - Google Search; what is a ing preferred stock - Search; what is a hertz bond - Search, "aegon hybrid" - Google Search etc. As I understand it, the search engines will rank the results based on a variety of factors, including hits. This tells me that my posts on bonds are receiving for more interest than the ones on individual stocks.

I think that many investors are becoming desperate for yields. This is not the best time to start learning about exchange traded bonds, after the most robust rally in bonds in my lifetime with yields falling to historic lows. Anytime is a good time to learn more about particular asset classes and the options available to individual investors. Learning more about exchange traded bonds such as trust preferred stocks or trust certificates is always a plus, but the separate issue is whether or not now is a good time to buy.

In my opinion, this is a time for caution for any new bond purchases. I am paring my long term positions, and find nothing attractive to buy at current prices. For bonds to be attractive at current yields, an investor would have to postulate a fairly long term low inflation/deflation economic scenario, and I personally do not believe that is the most rational long term forecast. What is the More Rational Prediction for the Future-Inflation or Deflation This is the kind of issue where each individual needs to make their own decision. Since I came of age as an investor in the 1970s, I do not need to be told twice about interest rate risk and a long term bear market in bonds decimating their value.

While bonds may continue to rally some, or hold their value for a few more months, it is my opinion that the risk for the intermediate and long term is weighted more to a decline in prices and a rise in yield, with better buying opportunities likely to come in 2 to 5 years than now.

1 comment:

  1. I too stumbled onto this blog during research for AIG exchange traded subordinated debt (which I stayed away from). I appreciate your insight into Trust Preferreds, Trust Certificates, other derivative securities such as the floaters and principal protected notes, as well as the various closed-end funds.

    I first learned of the wealth of information available at quantumonline through these blogs.

    Of course, the accounts of the unfolding drama amongst the cast of characters at HQ is always enjoyable.

    I'm sure I speak for other followers in expressing my appreciation for the time you take to share you knowledge with the web community at large.