Aurum Wealth Management Blog

Must Watch Bond Charts

Okay, love may be a strong word to describe these colorful data points plotted below. But I do not think investors are paying these enough mind.

Everyone has said interest rates will rise, usually generically referring to the 10-year bond. Investors crowded into short duration bonds to avoid a rise in interest rates. Interestingly from a year ago, what area actually had a tougher time? The short duration bonds (blue line, orange dots). Note that the 2-7 year area of the curve all rose relative to 1 year ago. The 10-year and 30-year yields are both lower.

092414yield curve

This is a chart of bond prices for CCC-rated companies. These are companies having a tough time making payroll with 50% defaulting within five-years of issuance. Investors are so starved for yield that they are paying above par for the privilege of lending to these junk rated companies!  Since 1986 according to Standard & Poor’s, the cumulative default rate over a 5-year period for this group is 50%, making this area of the corporate bond market a very risky proposition at today’s prices.

092414 cccrateddebt

The recovery in bond prices over the last year has seen investors warm back up to anything with a yield, including REITs and MLPs. Flows are climbing back, but still negative on the year. Rather than worry about the next price swoon, as investors may try to get out of the door all at once, see it as an opportunity to buy undervalued assets.

092414 flows

Our takeaways:

  • There is more risk in short bonds than investors appreciate.
  • High yield bonds are priced to perfection, beware of where they could be hiding in your “Income funds” reaching for yield.
  • Keep an eye on areas where flows are negative, as these can present opportunities.

For more information, please contact Aurum Wealth Management Group at 440-605-1900 or visit our website at To stay up to date with the latest investment-related news, follow us on Twitter @aurumwealth and sign up to receive our free newsletter.

Important Disclosures
This material is based on public information as of the specified date, and may be stale thereafter. We make no representation or warranty with respect to the accuracy or completeness of this material. Aurum Wealth Management Group and/or Aurum Advisory Services has no obligation to provide updated information on the securities or information mentioned herein. Actual events may differ from those assumed and changes to any assumptions may have a material impact on any projections or estimates. Other events not taken into account may occur and may significantly affect the projections or estimates. Certain assumptions may have been made for modeling purposes only to simplify the presentation and/or calculation of any projections or estimates, and Aurum Wealth Management Group and/or Aurum Advisory Services does not represent that any such assumptions will reflect actual future events. Accordingly, there can be no assurance that estimated returns or projections will be realized or that actual returns or performance results will not materially differ from those estimated herein. This material should not be viewed as advice or recommendations with respect to asset allocation, any particular investment, or any tax advice.

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