Rich Carreiro <rlcarr[at]animato.arlington.ma.us> wrote:

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This topic came up in the recent roundtable discussion of investment gurus
sponsored by Barrons, the transcript of which can be found in the January
16 issue. The consensus view was that the bull market for bonds (which
started in 1981 when interest rates peaked) is at an end. And most of the
pros agreed that long rates will almost certainly go up over the next
decade or so, especially if the U.S. money supply expands to the point
where the value of the dollar goes down. (Insert obligatory rant about the
budget and trade deficits here, followed by screed regarding the housing
bubble and the excesses of an asset based enconomy fuled by cheap money.)

That said, PIMCO bond maven Bill Gross had good things to say about
municipal bonds. His primary thesis is that because foreign investors
don't buy them (they don't need tax exempt interest) munibonds are
overlooked in the fixed income markets and represent a good value. Gross
said that buying munibonds would be something that would appeal to value
investors like Warren Buffet.

If you surf over to the Solomon Smith Barney Citigroup web site and read
the fixed income commentary and munibond commentary by George Friedlander
you'll see he also like municipals. Friedlander has made the point that
munibonds are a good investment because (a) they decline in value less in
a rising rate environment than taxable bonds do, (b) the yield curve for
munibonds is more steeply sloped than for taxable bonds, thus rewarding
investors for buying longer-dated maturities; and (c) the opportunity cost
of staying in cash or very short maturities is draconian.

In my view, longer dated munibonds are attractive for some investors --
especially income oriented people who are in high tax brackets and who can
buy bonds that are exempt from both federal and state taxes. But you have
to do your homework and educate yourself about fixed income investing.
(Something I don't think the original poster has done.) Finally, as Bill
Gross warned in the Barrons transcript, in today's low rate environment
you have to be VERY careful of transaction costs. That's why I like
Vanguard's long term munibond fund (VWLTX) which charges just 0.16 percent
per year.

TooTall wrote:
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"TooTall" <marion_blair[at]bellsouth.net> wrote
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Correct: In the current rising interest rate environment,
one may very well be locking in a low return on the
principal by buying into a long term, high grade fund.

I always thought the site below, providing an interactive
graphic of the "living yield" curve for bonds since the late
1970s, is helpful to deciding what term to pick. (I think it
was Rich C. who first posted this web site here, which
helped persuade me of his point, a few years ago, not to go
out further than about five years.)

Right now, with the Treasury yield curve just barely
inverted, I wouldn't go out more than about two years.


http://www.smartmoney.com/onebond/in...ory=yieldcurve

Related aside: Fidelity's brokered CDs, from banks
nationwide, currently offer very little beyond about a
two-year term. Six months ago, the case was otherwise.

"TooTall" <marion_blair[at]bellsouth.net> writes:

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If you look at various asset class studies, there's almost never any
reason to put money into long-term bonds, let alone LT bond funds.
The additional return you get (even when the yield curve is not
inverted) very, very seldom makes up for the vastly increased risk.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

With the long bonds paying so little these days, is there any reason to
put money into long term bond funds? Seems a good way to lock in a low
return.