For the more cautious amongst us, it’s a case of belt and braces and batten down the hatches. FDIC insured deposit accounts, cash, gold, UST’s etc ar all the rage. Shares are no longer for the feint of heart. But what about boring bonds? In the pandemonium the subject of corporate bonds seemed to have slipped below the radar.
I’ve trawled the internet to see what the pundits have been saying, about whether they are still a safe alternative.
Below are snapshots and links to the original article.
I think you’re going to see more pressure on corporate America. Profits are going to come down. There’s going to be higher levels of bond defaults mostly in the higher yield areas if you will. But it’s going to probably hurt all corporate bond prices for now. http://www.todaysfinancialnews.com/videos/a-safe-haven-for-your-capital-3905.html
Because bond insurance, which used to confer an automatic AAA rating on an issue, has become suspect since the subprime mortgage crisis, investors should focus on the creditworthiness of the issuer. Marilyn Cohen, who manages bond portfolios at Envision Capital in Los Angeles, recommended buying only general obligation bonds, which are backed by the municipality’s taxing power, and “good quality revenue bonds for essential services like toll roads, water and sewer authorities and school districts.”
Don’t get sucked into issues financing sports stadiums or nursing homes — the team could move elsewhere, and the nursing home might not get built. If you are more comfortable owning insured bonds, look for those guaranteed by Financial Security Assurance or Assured Guaranty. The market regards these two companies more highly than other bond insurers because they have so far avoided entanglements in subprime mortgages.
But Schroder Corporate Bond fund’s Adam Cordery remains defensive. “I will only ease up when the headlines say no one will ever buy corporate bonds again,” he says. “We expect a lot more bad news on the economy. There will be a lot of noise about companies going bust – even if only a few actually do – and that means the prices of all corporate bonds will suffer.” http://www.moneywise.co.uk/grow-money/investing/article/2008/06/17/playing-it-safe-the-fixed-interest-market
ony Ahearne, spokesperson for online investment rating service Moneyspider.com, says: “As more and more companies default on their loans, older, more experienced investors – who typically once piled in – are now giving corporate bonds a wide berth. Our advice is to channel any surplus funds into cash deposit accounts and enjoy the high rates of interest.” http://www.moneywise.co.uk/grow-money/investing/article/2008/08/11/get-back-to-basics-bonds
Brian Dennehy of Dennehy Weller & Co, the independent financial advisers, says deflation is, for the first time, starting to enter the reckoning when he considers which corporate bond funds may be suitable for individual clients.
