Barron's Says "Time to Buy Bonds"
Barron's writes "After the Fall: It's Time to Buy Bonds." They tell us, "Rarely in American history has it been this bad for bonds -- and rarely has it been such an opportune time to buy. The bond rout has been brutal. Supposedly ultrasafe Treasuries are on track to lose money for three consecutive years, declining 42% over that period. Other bonds, whether mortgage-backed securities or high-quality corporates, have also taken a beating, leaving investors with losses from what are supposed to provide ballast in a portfolio. But consider what may come next: the end of the bond bear market." But the piece says at the end, "Perhaps the biggest competition for bond funds is cash and T-bills. Retail money-market funds yield an average 4.9%, while Vanguard Federal Money Market (VMFXX), one of the lowest-cost funds, yields 5.3%. Those yields are comparable to short-term Treasury bills, which largely track the federal-funds rate and prospects for additional rate hikes. A six-month T-bill held to maturity yields 5.56% while one-year bills yield 5.45%." Barron's adds, "The knock on cash and T-bills is that yields will fall fast if the Fed cuts rates next year. Investors could miss out on a big bond rally and would have to reinvest at lower market rates. It's an opportunity cost -- the risk of giving up capital gains if there's a geopolitical shock or the Fed cuts. Do-it-yourself investors, though, could 'ladder' the bonds, buying several at different maturities on TreasuryDirect.gov, at a bank, or in a brokerage account, and reinvesting the cash when they come due. No matter how you do it, a 5% cash yield may be a bird in the hand worth taking."
