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Subject:  Bond bubble to burst? Who cares? Date:  8/11/2010  8:15 PM
Author:  PaulItIs Number:  31222 of 36218

First, I apologize for the provocative subject. I think I know who cares and why; I'm just surprised that their numbers are so large.

I invest in bonds/bond funds for the income they generate with the expecation that issues are held to maturity and then rolled into new issues. Barring some unforeseen financial opportunity, or some (God forbid) unforeseen personal financial disaster, I will never sell a bond on the secondary market. I think there are lots of investors like me. This seems like the most prudent investing strategy for bonds. Interim bond values are moot and rising interest rates are good: maturing bonds will roll into higher-yielding issues. Over time, the invested money yields, on average, the going interest rate, with some lag time depending on the maturities of the bonds. You have to tolerate changes in asset value, but if you're not pressed to sell at any particular time, that really doesn't matter.

What surprises me is that so much of what I read in the news about bonds and the "bond bubble" seems to be written to those who are investing speculatively in bonds, perhaps trying to time interest rate fluctuations. Or perhaps those who are worried about a bubble are in a situation where they may be forced to liquidate the bond before maturity.

So, after all that, I think I know the answer to my question. People must care about the "bond bubble" because they're participating in the secondary market. So, I'll change my question. Why is there so much (apparently speculative) activity in the secondary market? It seems at odds with the generally more conservative nature of bond investors.

If you read this far, thank you.

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