[quote=bankwannabe]

I’ve been hearing a lot of whispers around my office about an upcoming long-term bond rally. I am 2 years into the business, and have since grown quite comfortable with what moves the equity markets. On the flipside, I feel that my bond knowledge is still somewhat rudimentary relative to equities. I understand yield curve, duration, etc. etc…but what is it that TRULY drives a bond rally? Technical analysis is an easy answer considering the bearish bond market over the past 2 years…needless do say, how do you guys feel about a bond rally, and what would be the underlying factors to support this? And…why high credit quality vs. junk? Thanks!

[quote=bankrep1] [quote=bankwannabe]

I've been hearing a lot of whispers around my office about an upcoming long-term bond rally.  I am 2 years into the business, and have since grown quite comfortable with what moves the equity markets.  On the flipside, I feel that my bond knowledge is still somewhat rudimentary relative to equities.  I understand yield curve, duration, etc. etc....but what is it that TRULY drives a bond rally?  Technical analysis is an easy answer considering the bearish bond market over the past 2 years...needless do say, how do you guys feel about a bond rally, and what would be the underlying factors to support this?  And...why high credit quality vs. junk?  Thanks

[/quote]

bankwannabee,

Trust me after 2 years you have no idea how the equity markets move yet.

[/quote]

That's right.  As we all know Earnings Always Go Up, and as a result so do stock prices.  A stock market crash is impossible.

[quote=NASD Newbie][quote=bankrep1] [quote=bankwannabe]

I've been hearing a lot of whispers around my office about an upcoming long-term bond rally.  I am 2 years into the business, and have since grown quite comfortable with what moves the equity markets.  On the flipside, I feel that my bond knowledge is still somewhat rudimentary relative to equities.  I understand yield curve, duration, etc. etc....but what is it that TRULY drives a bond rally?  Technical analysis is an easy answer considering the bearish bond market over the past 2 years...needless do say, how do you guys feel about a bond rally, and what would be the underlying factors to support this?  And...why high credit quality vs. junk?  Thanks

[/quote]

bankwannabee,

Trust me after 2 years you have no idea how the equity markets move yet.

[/quote]

That's right.  As we all know Earnings Always Go Up, and as a result so do stock prices.  A stock market crash is impossible.

[/quote]

You still here, shi*t-fer-brains?

With your self-proclaimed market acumen, why aren't you out shorting everything in sight?

Gee, when the markets all tank, you could probably double what you're making on eBay!

Corrections happen, it is weird that over the last 3 years we didn’t have one, but things are changing back to normal, a permanent crash will never happen assuming our economy continues to function as it does today.



Go make E-trade rich.

[quote=bankrep1]Corrections happen, it is weird that over the last 3 years we didn't have one, but things are changing back to normal, a permanent crash will never happen assuming our economy continues to function as it does today.

Go make E-trade rich. [/quote]

What is a "Permanent Crash?"

[quote=NASD Newbie]

[quote=bankrep1]Corrections happen, it is weird that over the last 3 years we didn't have one, but things are changing back to normal, a permanent crash will never happen assuming our economy continues to function as it does today.

Go make E-trade rich. [/quote]

What is a "Permanent Crash?"

[/quote]

An example would be your career in the financial services industry.

The bond market is in the midst of beginning a healthy time period of total return. In my opinion, now is an ideal time to place money with capable bond money managers (such as Dan Fuss at Loomis Sayles). Depending on where you look, there are decent yields to be found, and if the Fed considers cutting rates sometime next year (possibly Q1 or Q2 2007), the total return aspect which involves price appreciation should take hold.

There are also good areas in international bonds- even with their impressive performance in recent years ( and also a play on the potential continuing devaluation of our dollar). Regarding credit quality, I feel its important to place money with managers who have the ability to diversify across qualities. Perhaps 70% investment grade and 30% lower quality to get a slightly higher yield ( even though spreads have come in- some junk is a good thing in order to diversify risk, etc).

[quote=blarmston]

Perhaps 70% investment grade and 30% lower quality to get a slightly higher yield ( even though spreads have come in- some junk is a good thing in order to diversify risk, etc).

[/quote]

Let me see if I have this right.  An investor should accept lower rated bonds because diversifying out of high quality is good, even though there is virtually no yield pick up?

Hey Putsy!

Tell the story about blowing up the widow with bonds when you were in production.  That should establish your bona fides as an authority on debt instruments!

I have been a buyer of various federal agency bonds with 4-10 maturities with rates between 5.50 and 6.375 percent.  As an answer to the original post, don’t try to be perfect.  Just buy quality at the right price.  Now may not be the best time, but it certainly is not a bad time.

Sooth/Blar,

Thanks for the input, this is what I was looking for. 

Bankrep, you are clearly an a$$hole, and are not welcome in my posts.  If you knew the first thing about the progression of my business, you would feel stupid about opening your mouth.  I am not particularly upset by what you posted here, but by your pompous, arrogant attitude in all of your posts.  Actually, I should be happy for Bankrep's like you, because when an affluent client that actually has a clue comes into my branch, they are almost floored when I don't try to sell them a VA.  Needless to say I think the negative reputation associated with bank reps stems directly from people like yourself, and probably outweighs the benefit I outlined in my previous sentence. 

"Well Mr. Client, unfortunately what BankRep1 neglected to inform you is that

1)  The fees associated with this annuity erode your return to the tune of an additional 1.5 to 2.0% per year.

2)  Even though you only have $1000 in your checking account, you only have access to 10% of your $200,000 VA.  Unfortunately, if you withdrawal all 10%, you will void all living and death benefits which are currently limited to only 5% withdrawals.

3)  Yes, you are deferring taxes.  And when you withdrawal from your annuity, you are pulling out gains first.  This means oftentimes everything you pull out is taxable, so while you should probably only be paying capital gains on most of this money, you have to pay 25% in taxes and potentially increase your tax bracket.  So not only will you void the living and death benefits with your $20,000 withdrawal, but oh yeh, you are going to owe back taxes on your earned income to date as well.  Sorry!

Equity rally to December...then switch to bonds!  Oppenheimer PA Muni is my personal favorite......

With your big 2 years in the business, I am sure you’re knocking em’ dead whatya up to 6 AUM, I bet you are dealing with lot’s of affluent clients at what 24. You’re right I should be damn jealous, will you be my new mentor.



Hey kid, you don’t have a fukin clue.

Why does everyone think I sell VA’s all day? I defend them because they are a useful misunderstood tool in the right situations, but I use MF’s, ETF’s mostly, for the record.

[quote=bankrep1]Why does everyone think I sell VA's all day? [/quote]

Because you work at a bank, jackass! 

-Sold over 500k of a Prudential A-rated structured note that was 15 year maturity with a 3 year call protection and an estate feature paying 6.5%. 

-Time to load up on medium term corps and mortgage backed notes, as well as medium and long term muni's.  Rates are about to peak, so it's time to ladder out your client's maturities.

-I love it, time to lock in 6.5% or better for clients in investment grade paper and watch the cash just roll in.  A good rate on a quality bond is like printing money.

"Let me see if I have this right.  An investor should accept lower rated bonds because diversifying out of high quality is good, even though there is virtually no yield pick up?"

Di-ver-sif-i-ca-tion.... In this current marketplace, it is prudent to diversify a clients bond portfolio... RIGHT NOW, there is little incentive to invest a large proportion into lower quality bonds... At some point, the spread between 10 year AAA's and junk will normalize and the potnetial for extra yield pickup will be worth it.

The key is Putsy.... You must be able to anticipate this scenario... By the time you notice the spread increasing, the bond market has already picked it up 6 months earlier and you get in in the 8th inning....

Hey Putsy, ask you wife if you can invest some of your IRA in junk bonds.... I could even recommend a couple ideas for you- but you're a waste and an embarassment to my home city....

[quote=blarmston]

Di-ver-sif-i-ca-tion.... In this current marketplace, it is prudent to diversify a clients bond portfolio... RIGHT NOW, there is little incentive to invest a large proportion into lower quality bonds... At some point, the spread between 10 year AAA's and junk will normalize and the potnetial for extra yield pickup will be worth it.

The key is Putsy.... You must be able to anticipate this scenario... By the time you notice the spread increasing, the bond market has already picked it up 6 months earlier and you get in in the 8th inning....

[/quote]

If you believe that the yield differential between high quality and low quality bonds is going to widen you do not want to own the junk, because in order for the yield on the junk to end up higher than the yields on the higher quality the values of both must move in the opposite directions.

Changes in yields can only favor the junk segment of your portfolio if prices change in a way that favors the junk.

If prices are falling the junk will yield more if the junk is falling faster--but if you already own the bonds and they are falling faster that is not good.

If prices are rising the junk will yield more if the junk is not rising as fast--but if you already own the bonds and they are rising it is not good to own the junk.

It is wrong to buy junk when there is virtually no difference between junk and high quality yields--regardless of what may happen later.  You're suppose to wait till later to buy the junk.

How embarassed you must be.

Actually... not really too embarassed... That situation would apply if you were to invest an old lady's life savings into 10 individual junk bond issues. Owning the junk bond latter would have that negative outcome...

Thats why I place anywhere from 20-30% of the fixed income allocation into lower quality bonds, and that money goes to a capable money manager to handles those decisions... Duration, maturity, sector rotation, cash positions, etc- they are all handled by a professional who better knows the current junk environment. I still say that a small portion of the clients OVERALL allocation should still be devoted to high yield bonds... Just depends on how much...

Blowing up an old ladies portfolio w/ individual bonds... Profiting from insider trading back in the 70's... Being an arrogant old man on the downward path of his meaningless life... These are all things I havent done and will try not to become...

How embarassed you must be...

I am not the fool who claims to be on the leading edge of the bond market by buying junk when there is essentially no difference between junk and high quality.

Why would you say something like that, unless you are woefully ignorant of the business?