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I've come across several mixed opinions regarding the role of high yield bonds and what the future may hold for them. Some articles discuss the bright prospects the high yield bond market has, given that defaults are relatively low at this time (even among BBBs), and that there is a favorable spread relative to the federal interest rates. On the other end of the spectrum, some argue that these junk bonds correlate too closely with equities and should be receive equal treatment and skepticism.

My own study of the topic has me leaning toward the latter- During the '08 slump, Barclay's "JNK" dropped 32.6% of it's value in just over 30 days (from Sept 5, 2008 - October 10, 2008), while the Dow dropped (only!) 11.19%... :eek:

I'm a believer that we're headed for a double-dip, and possibly a bad fall...

I've had about 10% of my portfolio in high-yield bonds as I re-allocate toward a more conservative strategy for the long term...Part of me thinks I should take the interest I've earned and run, swapping most of the junk bond balance for more Canadian Bond Index fund (which I already hold, with about equal weighting, the particular one I buy has a 70/30 split between government and investment grade corporate bonds). I figure that even if interest rates rise and the Bond index slips, I'd have time to reshuffle again without having to panic...

If you also have these HY bonds in your portfolio, are you also considering ditching them while the going is good? Any optimistic or alternative views that suggest keeping them at this weighting for now?
 

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While I am no expert on the subject, I am considering dumping my JNK holding and moving the proceeds into my PH&N Bond Fund D holding and let the experts there decide which bonds to buy and hold.

The same goes for my investment in the Morgan Stanley Emerging Markets Domestic Debt Fund (EDD) which I shouldn't have bought in the first place because I don't understand it.

However, I plan to continue to hold a relatively small position in the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) unless I hear a compelling reason to dump it.

Generally, I believe in the sage investment advice to never get "caught up in the headlines of the day" because things seem to change so quickly. A few short months ago, everything seemed to be relative sunshine and roses and now we suddenly seem to be approaching doomsday if you believe much of what you read.

It comes down to the 'buy and hold' versus timing the market argument. Or, how about buy during periods of maximum pessimism and sell during periods of maximum optimism while most get it exactly backwards!!

Age and timeline also factor in. The older that I get, the less I am willing to live with uncertainty and volatility.

You pays your money and you takes your chances. However, there is nothing wrong with being more conservative in uncertain times like this.

It might be a good time to concentrate your holdings in either a broad-based or a shorter term bond fund.

That's my take anyway.
 

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My corporate bond portfolio continues to perform. There were some sweaty times. My GMAC Canada bonds fell into junk status in 2009 and were selling for a yield of 89%. I tried to buy more but TD was not selling them. They matured in Nov 09 and returned their principal. I really never saw what risks were driving them into junk status. I think it was just the fear in the market about the future of GM. But they are now Ally Bank Canada. I love their commercials.
 

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It's just the right thing to do!!!

By the way, how can they afford all of that advertising time?

They seem to be in competition with Greypower!!
 

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Consider super safe government bonds. Long term U.S. treasury bonds, now yielding 4 per cent, will fall to 3 per cent and, if that happens, buyers will be rewarded by gains of nearly 25 per cent from capital appreciation and interest.

Avoid junk bonds, bank stocks, shares in debt-heavy companies and commodities. Look for companies with stable, safe dividends, like those from drug, utility, and telecom sectors.

Short the S&P 500 index.

Some have said that there is not currently anywhere safe to be in equities.

Source: Martin Mittelstaedt, Globe and Mail
 

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It's just the right thing to do!!!

By the way, how can they afford all of that advertising time?

They seem to be in competition with Greypower!!
They are in direct competition with ING and have no costs of a branch network.
 
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