No. of Recommendations: 4
f the name sounds even remotely like "high yield" (aka junk) you might want to reconsider. You might even want to reconsider for bond funds that are AAA rated. Some bond funds have subprime junk in them and the holders don't have any idea what they're holding.

I'm not even going to look at the link. On this boar we know much more than what gets spouted off elsewhere.

The premium on junk over Treasuries and investment grade corporates has increased. Whether there is still more to unwind is unclear and different junk funds are differently exposed to sub-prime and other very high risks, as well as leveraging issues. More conservative junk funds may now have enough differential to consider as an option, though obviously anyone considering these should be aware of the risk of default risks if the economy gets really bad. Some muni funds apparently took a beating because of flight by hedge funds that, as best I can understand, had to do with their liquidity, not with significantly increased risk to the funds' securities.

As to regular bond funds: unless you are dealing with funds that aggressively pursued sub-prime, the affect will be small. Yes, some AAA rated mortgage bonds should not have been and, yes, Dr. Tarr found Fidelity's inflation-adjusted securities fund to be dabbling in mortgage junk. But the total amount of default or default risk adjustment loss these funds will experience will be minimal, much less than the impact of interest rate changes.


The whole point of finance broadcasts and writing is to grab attention (and help those who make money from herding others), which means it almost always exaggerates.
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.