Bonds 01 (May 08 - Aug 10)

[kennynah]

but one must differentiate between Covalent and Ionic Bonds...

see pictures to better understand

Covalent Bond


Ionic Bond

[b0rderc0llie]

Haha my chemistry is not very good, maybe that's why I dun invest in bonds

[kennynah]

neither do i.... the only bond i know...is between a man and a woman....

[millionairemind]

Published August 27, 2009

US junk bond spreads signal slow recovery
Risk of continued high defaults keep credit spreads high


(NEW YORK) The sanguine view of stock investors about the US economy is not borne out by the credit market, which is signalling that a recovery from the longest downturn in decades may be painfully slow.

Risks of continued high defaults and massive refinancing needs of the most precarious corporate borrowers are keeping credit spreads high, especially on high-yield bonds, signalling the economy is not out of the woods.

'We are still priced for near recession at the moment and certainly notably below average growth,' said Christopher Garman, founder of Garman Research in Orinda, California.

High-yield bond spreads are reflecting about a 9 per cent default rate, 'which would put economic growth around zero to one per cent', he said.

Spreads would typically have to reflect a default rate more within the normal range of about 5 per cent to signal an economy growing more than about 1.5 per cent, Mr Garman said.

Economists polled by Reuters last week said that the economy is recovering more strongly than previously expected but next year it will be lacklustre and risks of a double-dip downturn remain.

After shrinking by one per cent in the second quarter on an annualised basis, US gross domestic product will grow 2.4 per cent in the current quarter, according to a poll of about 70 economists.

High unemployment and consumer debt will hamstring the economy after an initial rebound, however, respondents said, and they still see a 25 per cent chance of a double-dip recession.

Though not considered a traditional economic indicator, corporate bond spreads typically widen ahead of recessions and rising defaults as investors demand more yield for increased risk. Widening spreads also brake the economy as they make it more expensive for corporate borrowers to fund hirings and expansion.

Spreads on high-yield bonds roughly doubled in the six months before the recession that started in December 2007.

As the credit crisis came to a head a year ago, spreads on many junk bonds and even some investment-grade bonds widened to 'distressed' levels of more than 10 percentage points over Treasuries, prefiguring mega-defaults by Lehman Brothers, Washington Mutual, Tribune Co and others.

About 31 per cent of high-yield bonds are still trading at distressed levels, down from a peak of about 87.5 per cent in November but still high by historical standards, suggesting many companies remain vulnerable, Martin Fridson, chief executive of Fridson Investment Advisors in New York, said.

'The fact that you have as many as nearly one third of issues still at distressed levels would indicate it's not a boom time coming soon,' he said.

[winston]

This Indicator Will Warn You Before Stocks Fall By Tom Dyson, Daily Wealth

In December 2005, Citigroup announced a new 10-year, $100 million bond issue...

At any time, Citigroup has hundreds of different bond issues trading in the markets. Right now, for example, my Bloomberg terminal shows over 500 different Citigroup bonds. There was nothing special about this 2005 issue...

The housing market was rising, Wall Street's mortgage machine was in full swing, and America was enjoying the peak of its prosperity. At the time, you and I were paying 6% to borrow money secured against our houses. Citigroup would pay 5.3% to borrow money, unsecured.

For two years, these bonds traded in a narrow band between $95 and $105. Then in March 2008, Bear Stearns failed and prices started to erode...

Citi's bonds broke $90 in July, when Fannie Mae and Freddie Mac failed. They broke $80 in September, when Lehman failed. And by March 2009, when it seemed Citigroup itself might fail, they had fallen to $62...

Here's the thing: In the last six months, the credit markets have made a remarkable recovery. This bombed-out Citigroup bond issue now trades for $99 again. In other words, investors are pricing these bonds as if the credit crisis never happened. Amazing.

This chart of the investment-grade bond fund LQD is even more amazing. It shows prices of top-quality corporate bonds have surged and are now back to 2006 levels...

Corporate Bonds Are Nearing Credit-Bubble Highs

Most people don't know this, but the bond market is far more important to America's economy than the stock market. For one thing, the bond market is over five times as large as the stock market. For another thing, institutions dominate the bond market. They may not be the shrewdest investors in the world, but they are sophisticated, they trade billions, and they trade with less emotion. The stock market is a roadside casino in comparison, reflecting the hopes and dreams of a million gamblers.

I don't recommend you buy LQD or corporate bonds in general. They're expensive now. Besides, government support is the only reason the bond market is soaring and Citigroup's bonds are trading back at par. If the government withdraws this support for some reason, the bond market will collapse again.

Instead, use the bond market as an indicator. Russell Napier, a well-known stock market historian, studied market tops and bottoms over the last 100 years and showed corporate bonds tend to lead the stock market by several months at important turning points.

Today, the trend is clearly up. So for now, stock market investors have nothing to worry about. But keep an eye on LQD. It should give us advance warning of the next trend change in the stock market.

Source: Daily Wealth

[persistentone]

I would say LQD is trading like it is 1999. It is either pricing in perfect economic conditions, or alternately pricing in a very long-term artificially low government rate.

[winston]

Crux: How about bonds?

Hunt: For bonds, I'm going to read Mike Williams' True Income, which is a great source for individual bond recommendations. I always pay attention to bond geniuses Bill Gross and Martin Fridson. They are among the world's best on bonds.

Source: Daily Crux

[kennynah]

until now... i dont know how to trade bonds... i somehow have this mental block about this instrument...

[persistentone]

Crux: How about bonds?

Hunt: For bonds, I'm going to read Mike Williams' True Income, which is a great source for individual bond recommendations. I always pay attention to bond geniuses Bill Gross and Martin Fridson. They are among the world's best on bonds.

I don't find Mike Williams' True Income on Amazon. Can you publish a link to buy the book?

[winston]

Hi persistentone,

It's a newslettter. I dont read it but this is the link:-
https://www.web-purchases.com/TIN/ETINK ... 281&r=Milo

I'm only interested in Bonds when interest rates are very high. Right now, it's so low so I think there are better opportunities elsewhere.

Take care,
Winston