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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35381  
Subject: Re: Bond Funds, Again Date: 1/8/2013 11:02 AM
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You --and many people-- are saying that the rate couldn't go lower or even negative.

No, I don't think I made such a comment. I think they can certainly go lower, but I doubt the potential for lower rates will necessarily mean significant increases in the NAV for bond funds that are already heavily invested. I think cap gains of 10% are overly optimistic. Now, he might get 10% on that specific purchase but again, what about funds that are already invested? Funds that are otherwise diversified over many different maturities and sectors?

Your point seems to be that opportunities still exist to make a profit by buying individual bonds. I completely agree.

My point is that, as your chart and my alerts are close to indicating, the ability to make a profit in some bond funs may soon be over. At such low yields, it does not take much of a NAV correction to wipe out an entire year of interest on a bond fund. One government bond fund I watch is down 2.1% from its peak this past summer. The yield on the fund is less than 3%. Worth the risk for less than 3% annual yield?

We bounced off the NAV lows so we still have more time but you have to remember, your typical bond fund investor is not the same type of person that is a bond trader.
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