This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Getting Ready for a Bond Bear Market

A solid performer that tracks the intermediate government/credit benchmark is BMO Short-Intermediate Bond (MAIBX), which has a duration of 3.2 years. Portfolio manager Jason Weiner has reduced his duration to prepare for hazards in the bond markets.

"If we get a resolution of the fiscal cliff, then we could see rates moving higher in the second half of 2013," says Weiner.

The Barclays Aggregate has 20% of its assets in corporate bonds, with most of the rest in Treasuries and government-backed securities. Weiner has 54% of assets in corporates. Those yield more than Treasuries. If the economy improves and rates rise, then corporates would likely outdo Treasuries. Corporates tend to shine when the economy strengthens because investors worry less about defaults.

Loomis Sayles Intermediate Duration Bond (LSDRX) has a yield of 2.3%, about the same figure as the Barclays Capital Aggregate index. But with a duration of 3.9 years, the Loomis Sayles fund has less interest-rate risk than many competitors.

To boost returns, portfolio manager Chris Harms emphasizes corporate bonds and other issues that come with credit risk. He has 7% of assets in commercial mortgage backed securities, which yield a percentage point more than Treasuries. The securities are backed by loans for commercial properties, such as offices and apartment buildings. While CMBS can default, Harms limits risk by focusing on issues with the top rating of AAA.

Harms says that his CMBS and corporate holdings should prove relatively resilient in a bond bear market.

"The portfolio is well-positioned to withstand a gradual rise in interest rates," says Harms.

Baird Intermediate Bond (BIMSX) has a duration of 3.9 years and a yield of 2.6%. The fund has boosted its yield by underweighting Treasuries and putting 48% of assets in corporate bonds. Portfolio manager Warren Pierson argues that corporate bonds are relatively safe bets these days.

"It makes sense to overweight corporates at a time when most corporate balance sheets are in good shape," he says.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $94.99 0.00%
FB $99.54 0.00%
GOOG $678.11 0.00%
TSLA $148.25 0.00%
YHOO $26.82 0.00%


Chart of I:DJI
DOW 16,014.38 -12.67 -0.08%
S&P 500 1,852.21 -1.23 -0.07%
NASDAQ 4,268.7630 -14.99 -0.35%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs