I’ve looked at bond inventories (bonds for sale by various firms all along the street) on, more or less, a daily basis for the past 20 years.
It’s a habit. It doesn’t necessarily mean I’m going to buy something.
The main purpose of the exercise is to get a feel for the bond market that goes beyond looking at where Treasury bond yields are for that particular day.
I see what investors are willing to pay for bonds based on multiple factors, the most important being yield and safety.
In recent years, it seems that most investors have been more concerned with quality and capital preservation than yield.
That’s no surprise in light of the volatility financial markets have experienced since the Financial Crisis of 2008.
Accommodative Federal Reserve policy and investor fear have kept rates at historical lows for nearly a decade.
But now that’s changing — albeit slowly.
The unexpected election of Donald Trump, while inspiring a tangible rally in stocks, has sparked an upward movement in bond yields (prices go down) due to anticipated inflationary pressure from possible infrastructure spending and tighter foreign trade policy. The Federal Reserve gradually shifting away from its zero-rate federal funds policy is also a contributing factor.
As the Fed shifts from an accommodative policy, the result will be the shrinking of its balance sheet, meaning the central bank will be selling instead of buying bonds. Expect this to put gradual pressure on bond yields and prices.
But waiting for the yield on the 10-year Treasury to reach 4% may be like watching grass grow or paint dry. Deutsche Bank analyst David Bianco recently quipped that “We are more likely to go to Mars” before the 10-year hits 4%.
So where do investors go for bond-style performance (to bring balance to a portfolio) and decent income?
Lately, I’ve been on a bit of a closed end fund (CEF) kick. There’s value to be found in the CEF space and the yields are magnificent.
Here are three ideas that are a better choice right now than bonds.