Bonds 2020 - Is It Crazy To Buy Them?


Why Hold Bonds?

- Government - capital preservation. Government Bonds tends to rally. 
- Diversity - they're a good hedge for equity, and are always liquid. 

You don't get them to get rich! They preserve wealth, not create it. 

Risk and Return. 

[bit here you don't understand about risk and reward]. 

Bonds aren't always less volatile than

07'25. The Volatile 20+ Treasure Bond is comparible with the Life Strategy 100. 

- Capital Preservation. 

During the 2008 Crash:
1-3 months Govt Bonds did almost nothing, just acted like cash. 
Longer Duration Bonds went up as equity fell. So they're an effective hedge. 

What if Markets aren't crashing?

You may still want to diversify your equity. Find asset which zig when equitys zag. 

 - Are Bonds Expensive. 

One of the reasons people give for not buying bonds at the moment (May 2020), is that they're expensive. 

MORE HERE. 

Kryptonite for Bonds is inflation. 

Paul Volker finally got interest under control. 

Normal treasury bonds don't provide a hedge against inflation, to do that you need an inflation linked bond. 

Currently worried about inflation because central banks around the world have been printing money faster and more then they've ever had before to soften the impact of the economic crisis and to worry about the fall out later on. 

Ray Dalio - this period like 1930-45, is a period when it would pretty cracy to earn bonds. 

If you want protection from inflation then you can buy an inflation-linked government bond. Principal and coupon rise and fall in line with inflation. Tend to have a lower yield than comparable normal bond. 

- Currency Hedge?

MORE HERE. 

Currency Hedge 

Conclusion: Crazy to own them currently, because they do provide a very important hedge against equity. 

































Comments

Post a Comment

Popular posts from this blog

Global Credit Crisis 2020 April 4, 2020.

Global Credit Crisis 2020 April 4, 2020.  https://www.youtube.com/watch?v=W21RzZO3HYk Entering a deep and synchronised depression  Companies that have a lot of leverage, increased probability of default - global credit crisis. What is credit risk? Whenever an entity lends money, you’ll expect the money to be repaid in full at a date in the future, with interest paid along the way. But the higher the risk, the higher the interest payments.  If company has a higher credit risk, you’ll be compensate for the increased chance of default, where the company becomes bankrupt - the greater the risk, the greater the return, but the return or yield is greater.  Why does  a company go bust? Assets and Liabilities Liabilities - how do you pay for your assets? Equity - paid by shareholders Debt - Bond Issues. When the price of a company falls that has drop has to be mopped up by the equity, making it decrease, as the debt can’t shrink. Likewise when assets shrink, the equity ...
Read more

Inflation or Deflation 2020?

https://www.youtube.com/watch?v=WFiJw6QoTL4&t=3s What is Inflation? Look at the price of anything (bread) over any length of time and it goes up. Bread has quadrupled since the 80s. While it tends to go up, in any year the price of bread can drop below 0.0 that's deflation.  Go to Office for National Statistics for Inflation Figures: They look at thousands of goods in a consumer's "consumption basket such as shelter". There are urban consumers, argri users etc.  Basket changes as consumer tastes change.  Drivers of Inflation: Four Types: Demand Pull Inflation, Cost Push Inflation, Wage Push Inflation.  Rapid Expansion of Money and Credit = Demand Pull Inflation. Usually done by central banks to counteract a crisis.  Concern is that it will increase the price for goods and services: more dollars chasing the same amount of goods and services.  During 2008 and now the FED's balance sheet is now 6 trillion dollars. It makes loans, not grants.  Many Hed...
Read more