Inflation is currently at a whopping 8.3%—difficult for any investor to keep up with, let alone … [+]
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People often ask me, “When will the bear market in bonds be over?” As if I knew. The honest answer is, not until the economic figures verify a slow-down is in process. The numbers you need to monitor besides CPI and PPI are new housing starts, existing home sales, new automobile sales and used car sales. Oh, and it’s not a bad idea to keep an eye on retail sales.
Since we’re a country where 70% of GDP is from consumer spending, that’s your litmus test too. We think consumer spending will come to a screeching halt sometime this year. The bond market continues its price descent with higher mortgage and interest rates, excruciatingly high energy prices and overall inflation leading the way.
So what should an investor do? The answer is simple. Take nibbles at individual bonds between now and when the designated numbers begin to crater. Once they begin to fall, it’s too late. We will have reached the peak in yields. There’s so much speculation in Bondland about how many rate hikes the Fed will heap upon us. We don’t know. And certainly the gurus don’t know. The accelerated fall of bond prices has been faster than the Fed’s two paltry moves can keep up with.
Munis
Municipal bond yields in many states have more than tripled in the 7-10 year maturities. To insert some context, last year at this time ten-year AAA rated General Obligation bonds yielded 0.976%. Today that yield has soared to over 3.00%. Will yields go higher? I hope so. Continue taking small to medium size nibbles at individual municipal and corporate bonds. And for goodness sake don’t convert paper losses into realized losses by selling the bonds you now own. That is, unless you have offsetting gains. Then it becomes an informed tax-advantaged strategy rather than a panic get-out-at-any-cost sale.
Today’s increased yields drastically improve your reinvestment rate if you aren’t living on the income. In bond funds, open end, closed end or ETFs, you don’t have many choices. The massive outflows from bond funds causes forced selling by the funds to meet redemptions. Sure, our individual municipal and corporate bonds have lost value. But if you hold to maturity you’ll get par value—no such thing with bond funds. They are perpetually invested.
So that’s the problem and here are some yieldy bond solutions. In the municipal …….
Source: https://www.forbes.com/sites/investor/2022/05/20/how-to-make-money-from-rising-bond-yields/