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The Big Bond Scare of 2017 (Mid-Year Update)

| August 01, 2017
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Back in February (which is my least favorite month of the year by the way) I penned a tantalizingly juicy blog post about how the media are out there trying to get you all riled up in regard to the bond market. Seriously though, how awful is February? I’m sure everyone’s February experience is different from region to region but here in Illinois, it sucks. Bad.  It’s normally cold as crap outside, and therefore I can find very little to do other than whine and complain. Although last year we had a couple of 70-degree days. It was splendid! I played golf. In February. In short sleeves.

Back to the topic at hand. I’m not sure if you remember the headlines back then but I did a quick Google search on the bond market and I found a few articles such as these:

“The Fat Lady Is Signing for The Bond Market.” Seeking Alpha. 11/23/2016

“The Bond Market Could Get ugly.” Business Insider. 11/21/2016

“Trump Bond Sell-Off Should Scare Central Banks.” Bloomberg. 11/21/2016

I happened to see an article this week that alarmingly proclaimed: “Echoes of 1994 bond meltdown stoke market’s Fed fear.” CNBC. 7/24/2017.

My point with this article is not to slam the media. I did that back in February. The point of this post is to illustrate the absurdity of financial experts and their predictions. As I scrolled though CNBC.com today I saw something like four of five predictions on everything ranging from where the S&P500 was going to end this year to a three-year forecast (otherwise known as a total shot in the dark) on where oil prices would be trading in the year 2020. Insert ‘crystal ball’ joke here.

So, today I decided to take a look at how bonds have done thus far in 2017 to see if all those scary predictions were materializing during the first 7 months of the year. Before I slap you across the face with the truth, I’ve got to get something off my chest. In January, with the real threat of rising rates on the horizon, I was definitely under the impression that bonds were probably going to be in for a rough year. I didn’t have a prediction, but I certainly wasn’t very excited about the outlook for bonds in 2017. Wow, I was wrong. It happens. Plus, this is the type of situation where I’m thoroughly happy to be wrong!

Here are a few bond indices and their performance as of 07/31/2017:

Barclays US Agg bond TR                                                               +2.71%

Barclays US Government TR                                                          +2.03%

Barclays Municipal TR                                                                     +4.40%

Morningstar US Corp Bond TR                                                       +4.66%

I don’t want to get into all the details in regard to what each of those indices are comprised of but know that those 4 indexes represent the big four of bond types: corporate, government, municipal. Well, ok, the big three I guess. The Barclays US Agg sort of looks at all of them with a bird’s eye view.

Folks, for all four bond indexes to be UP during a nearly eight-month period in which we’ve had not only TWO Fed rate hikes, but soaring stock markets cannot be overstated. I am still somewhat astonished by how well the bond markets are performing. There are so many headwinds for bonds right now, yet they continue to perform to the upside. Will it continue? Couldn’t tell ya. Wait, I see what you’re doing here, trying to pigeon hole me into a prediction. I’m onto your game and it isn’t going to work.   

I think it goes without saying at this point that all those alarming predictions from last November aren’t worth the Charmin® they wipe their rear ends with. Look, no one has any clue ever where any investment is going. Not me, not anyone in the financial media, or your neighbor ‘who knows a lot about investing.’

If someone is offering you a prediction, it may come true, it may not, but please don’t base an important investment decision on said prediction. Rather, rely on fundamentals.  Invest your dollars (or bitcoin, or whatever other currency you may be holding) according to your risk tolerance. Tactically rebalance when needed. Try to identify good investment value. It will generally work out better for you than listening to someone’s prediction(s).

Okay. That’s it, I’m done.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing involves risk including loss of principal. No strategy assures success or protects against loss.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

The Bloomberg Barclays U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.

The Bloomberg Barclays U.S. Government/Credit Index is an unmanaged market value weighted index composed of all U.S. Government and government agency securities (other than mortgage backed) that are of investment grade with maturities of one year or more.

The Bloomberg Barclays U.S. Municipal Index covers the USD-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and prerefunded bonds.

The Morningstar US Corporate Bond Index includes US corporate bonds with maturities of more than one year and at least $500 million outstanding.

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