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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35392  
Subject: Re: Potential Bond Problems Date: 12/2/2009 2:09 PM
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"Lately investors have been pouring money into some of the riskiest fixed-income categories. Junk bonds have been having their best year ever, up an average 42.5% this year, according to Morningstar. Emerging-market debt funds have notched similar returns. The Fidelity New Markets Income Fund (FNMIX) was up 44.4% year to date, even after the Dubai news."

OK, but this is a comparison to recovery from sheer panic after the big meltdown a year ago September. As I recall, the only safe fixed incomes were Treasuries and they were bid down to 0% interest.

Bond prices have recovered a lot and people who put their money down a year ago have done well. But I can't imagine anyone who thinks those kinds of capital gains can continue in the bond market. Prices are still recovering and they still have a ways to go yet. But the potential for inflation and rising interest rates alone--much less Dubai and other potential market shocks--may limit full recovery--especially in these uncertain times.

I'd say the phase of easy capital gains for bond investors is coming to an end. That makes equities more attractive--at until least higher yield makes yield investments more profitable.
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