Saturday, February 19, 2011

High Yield Bonds vs Long-term US Treasury Bond Performance

The 20 year + US Treasury bond peaked in December 2008. Since that time it has declined more than 20% in value. Well, so much for the safety of government bonds. These bonds are yielding around 4.7%

High Yield (junk bonds) bottomed in March of 2009. Since that time High Yield bonds as represented by JNK (high yield bond etf) have appreciated 97.55%. High Yield bonds are yielding around 7%.

Investors are still embracing high yield bonds, consequently they continue to enjoy a low volatility uptrend. The GWM fixed income risk management program has proven to be very effective in the past and I have no reason to doubt it's effectiveness going forward.  Should the trend change our risk management system will provide a timely exit signal.

After such a large decline, the long US treasury bond may be getting closer to bottoming out. It may be due for a bounce. If the stock market were to begin a correction, I would want to own the long treasury at these levels.

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