What Are Bonds and What Role Should They Play in Your Portfolio?

What Are Bonds and What Role Should They Play in Your Portfolio?

Posted On February 25, 2020 1:03 pm

Concerns that the Corona Virus is threatening to send the global economy into a recession has started a flight into the safety of bonds.  The yield on the U.S. 10Year note has now dropped below 1.4%, — it’s lowest level in over two years, signaling that the GDP might turn negative over the next quarter if factories and supply chains don’t re-open.

Most investors understand the need to have a portfolio that is diversified between stocks, bonds, and other assets.  The safety of bonds has caused investors to pour inordinate amounts of money into bonds, both government and corporate, which in turn had driven rates even lower, helping prop up stock prices.  Thanks to this liquidity provided by Central Banks, it has created a self-filling feedback loop.

Most pension and mutual funds—which means by extension individuals— have a mandate to hold a certain percentage of bonds in their portfolio. Now, when inflation is taken into account, the real return of most government-issued bonds is now zero, or in some cases negative.

With so much money in the… Continue reading at Stock News

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

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