Inquiring minds are concerned about corporate and government bonds, especially bond funds. Is a debacle in bonds on the way? If so, how does one play the setup?
That is what is on the mind of reader Kim who emailed:
Hello Mish
Everyone writes about the coming turmoil in the bond market as interest rates rise. Would you please write an article addressing this issue.
How will this affect my 401k bond funds. One fund is corporate and the other is government bonds. Is one safer than the other.
Will the rising rates destroy my bonds values? Will the SEC impose exit fees on retail investors. Just who is a retail investor.
Also what do you think the odds are, that the IMF proposed freeze of retirement accounts, will be adopted. Who will authorize that action?
Thanks,
Kim
Where to From Here?
Hello Kim
I suggest government bonds are likely the last to be affected in any major bond selloff.
Look at it this way: In a flight to panic of any sort, government bonds are typically the safe haven. That is particularly important for bond funds as opposed to buying individual bonds and holding them to term.
While no one has a crystal ball, I suggest the bloodbath will be in corporates first. Assuming that happens, reassess government bonds.
As for the freeze in retirement accounts, forced ownership of government bonds, and other similar ideas, I suggest you ignore them.
Exit corporate bond funds first, especially high yield. Junk bonds are in a massive bubble, as no-covenant agreements abound. The worry about US government bonds is, for the time, overblown.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com