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Thanks.

I'm curious whether you saw/read the following article? And if you generally agree with it?

https://portfoliocharts.com/2019/05/27/high-profits-at-low-r...


Bond convexity basically means that the sensitivity of a bond to interest rate changes is not constant. It’s also not linearly related to rates. In fact, it accelerates as rates drop, and the amount of acceleration depends on how much time is left on the bond.


The writer said the key takeaway is:


Because of convexity, bonds have way more income potential at very low or even negative rates than most people realize.


I thought it was a good write up although I'm not sure his key takeaway was the same as mine.

Rich
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Rich,

Good article. Thanks for linking it.

The game he describes is way beyond my pay grade. I ignore convexity entirely and focus on trying to buy bonds at a discount --which I intend to hold to maturity-- such that the combo of coupons and cap gains offers a decent total return. In other words, classic, Ben Graham-style, value-investing applied to fixed-income instruments.

E.g., one of my all-time, best buys was Xerox's 8's of '27 for 34. Within a couple years, it was back to trading near par, and I got called in '17. But meanwhile, my yearly, achieved YTM was close to 100%.

Right now, all markets are tough for "investors". Due to the Fed's interventions --more so than the uncertainties over the medical situations-- classic fundamental analysis can't be used. When a genuine bottom gets put in -- as much as 2-3 years hence-- then I go back to shopping.

Arindam
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