Bonds
I'll do my best to keep this as brief as possible. My father is retired, has way too much time on his hands, and has convinced himself that the Corona virus is going to continue to wreak havoc on the financial markets. Thus, he believes that he is overweight on equities. Whether I agree or disagree with him is beside the point, however, he keeps asking me about bonds. Specifically, which ones he should buy. My knowledge on bonds is limited, so I thought I'd open it up to this forum to see if any valuable tips materialize. Thanks in advance.
There is not much to get enthusiastic about in the bond market. The 10 year US Treasury has a yield of about 1.35%, which is I think is the lowest ever. I also think the curve must have inverted again. I could be wrong but I think the spreads on corporates are tight, as investors have been searching for yield. (the recent flight to safety might have changed some of that). I am not sure how conditions are in the muni bond market. You might try to persuade him to turn off CNBC and pursue another hobby.
TIPS
Buy Silver and Gold instead of bonds here
A lot of people seem to forget that savings bonds exist. I am no professional, so for a casual investor like myself I think these are superb investments in the current rate environment. I series are at 2.2% right now, and EE series are like 3.3% if you hold them for 20 years. Yes, you read that right.
These rates may change after April. I wonder if they will make adjustment to the bonds based on expectations of a long period of low interest rates.
Fun fact for those that can't afford to drop 1k on bonds - these can be purchased on treasury direct in denominations less than $1k.
On Feb. 5, Direxion launched the Flight to Safety Strategy ETF (Ticker:FLYT) which invests in long T-bonds, utility stocks and gold bullion (the latter capped at 22.5% portfolio weight). It gets rebalanced quarterly to increase the weight of the component which has the lowest trailing 5-year volatility. It counts as an "active" ETF with the objective of beating the performance of an index called the Solactive Flight to Safety Index.
Current weights are Long T-bonds 45%, Utilities 33%, Gold 22%. Expense ratio is 40 bps.
Since inception Feb. 5, it gained 15.3% (thru Feb. 24 close), while the S&P 500 price return fell 2.2%. By comparison, gold bullion (SPDR Gold Trust), rose 6.6%.
Obviously this is too brief a sample of returns to draw any conclusions about the effectiveness of FLYT as a hedge vs. coronavirus, or any other event causing a market shock, but IMO it's worth keeping an eye on this interesting new ETF.
However, for anyone who thinks coronavirus will be an apocalyptic pandemic, the best investment right now would be to stockpile medical supplies ;-)
I've been tracking FLYT - it has not been doing well.
Virus may be overblown but governments and citizen won't care. Once it hits the U.S. (like really hits it) commerce and consumerism is sure to slow, 1Q earnings will be shitty (and potentially 2Q), and the markets will take a downward turn. S&P has already turned negative YTD, and we haven't seen the worst of it. Could see a ~15% decline between now and May imo. Then once the virus gets behind us it'll just be catch up for the rest of the year.
This aged like milk.
Bond ETF or mutual funds are easier than buying an individual bond. Municipal bond funds if he is in a high tax bracket (yield is normally lower on these). Another idea mentioned above are high yielding dividend stocks to allow some growth and income.
If he really wants bonds, would advise Agency MBS over treasuries.. the excess 100 bps of coupon is well worth the prepayment risk
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