Bonds and Fixed Income

[gfp927z]

Bar, >> muni and corp bond funds <<


They likely did fall in mid March, but only briefly and then quickly rebounded once the Fed stepped in with liquidity. VTEB and VTC are good surrogates for the overall muni and corp bond sectors, but if you blinked you would have missed the crash that occurred in mid March. On the charts you can see the temporary collapse, and it was scary to watch, the bond markets were seizing up until the Fed arrived. Munis and corporates dropped 20% and 27% respectively, but then came right back.

One problem with bonds now is that with the Fed returning to ZIRP, there is little chance for any additional capital gains, all you'll get now is the coupon rate. I was enjoying that gradual decline in interest rates, which had bond prices in a nice steady uptrend. That part is gone now, but if you have bonds from years ago you'll still get the high coupon rate.

I follow the bond market fairly closely since my dad has a 36% allocation to bonds. He has a lot of individual corporates from years ago with coupon rates from 5.1-7.45%, and munis from 3.35-4.6%. In comparison, muni rates now are running 2.22% (VTEB), and corporates 3.27% (VTC), so these older bonds have a big premium.