Daily Investment Tips

Despite the high risk in Junk Bonds investment, investors who invested in Junk Bonds sinces 2007 have seen high yield returns. According to Bloomberg analysis, Junk Bonds have returned 34 percent, including price gains and interest, since October 2007.

Junk Bonds have performed better than S&P 500 index

Bonds rated below investment grade have beaten the Standard & Poor’s 500-stock index by 53 percentage points since October 2007, returning 34 percent through Nov. 25, while stocks fell 19 percent.

Investors who invested in Junk Bonds of companies instead of buying shares of the companies have seen better return

The contrast is even more striking in the case of several well-known companies. Ford Motor’s 7.125 percent notes due in 2025 have risen 129 percent since Oct. 9, 2007, well ahead of the 17 percent gain by shares of the second-biggest U.S. automaker

Why Junk Bonds are Returning higher yields

Junk bonds have remained buoyant because “the bond market doesn’t believe we will have a meaningful increase in default rates,” Says Junk Bond Analyst.

have returned 34 percent, including price gains and interest, since October 2007.

written by Constantine Njeru \\ tags: Bloomberg, Bond Market, Bonds Investment, Default Rates, High Risk, High Yields, Junk Bond, Junk Bonds, Stock Index, Stocks

Bill Gross, director of Pimco, best known as the most successful bond investor of his generation, has given his thoughts on how Federal Reserve plan to pump money into the US Economy will affect the bond market in the future.

He has termed the move by Federal Reserve bank a giant ponzi scheme. Yes, the entire federal money system is a Ponzi scheme, but this isn’t news. This system has been in place for about 100 years.

The Future of Bond Market Prices and Interest Rates

The actions of the Fed, led by Chairman Ben Bernanke, will “likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment,” he wrote in a commentary posted on Pimco’s website Wednesday. See Gross’s full commentary.

Check writing in the trillions is not a bondholder’s friend; it is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme,” he said.

The End Game

Such a plan “raises bond prices to create the illusion of high annual returns, but ultimately it reaches a dead-end where those prices can no longer go up,” Gross wrote. “Having arrived at its destination, the market then offers near 0% returns and a picking of the creditor’s pocket via inflation and negative real interest rates.”

written by Constantine Njeru \\ tags: 100 Years, Ben Bernanke, Bill Gross, Bond Market, Bond Prices, Bondholder, Bonds, Creditor, End Game, Equity Managers, Federal Money, Federal Reserve, Federal Reserve Bank, Illusion, Inflation, Interest Rates, Money System, Ponzi scheme, T News, Trillions

Yahoo finance have an interesting interview with Michael Pento, senior market strategist at Delta Global Advisors. The man has come up with some neat mathematical calculations on why Americas’ debt is a disaster waiting to happen.

I have always thought uncle Sam is too big to fail but after reading Michael Pento interview the US could be another Greece tragedy or may be, another Argentina.

Using Treasury Department’s recent U.S debt estimates that showed total U.S. debt will top $13.6 trillion this year and rise to 102% of GDP by 2015. Moreover, the publicly traded debt (debt excluding intra-governmental obligations) will rise to $14 trillion by 2015, up from “just” $7.5 trillion in 2009.

Mr Pento then calculates, At $14 trillion, the interest payments on the public debt will total about $1 trillion in 2015, he continues; even assuming solid growth and low inflation, that would equal about 30% of total government revenue. “What do you think that does to our bond market?,” Pento wonders. “It leads to a dollar crisis and a bond market crisis. That’s why gold refuses to go down. ”

If Pento is right then expect the yield on US treasuries to rise. Investors in bonds could see the value of the bonds fall.

Read the rest at the Source Yahoo Finance

written by Constantine Njeru \\ tags: Bond Market, Bonds, Debt Crisis, Dollar Crisis, Gdp, Global Advisors, Government Revenue, Governmental Obligations, Inflation, Interest Payments, Market Crisis, Market Strategist, Mathematical Calculations, Michael Pento, Public Debt, Treasuries, Treasury Department, Trillion, Uncle Sam, Yahoo Finance