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I have held some real return bonds through Claymore XRB fund over the last few months. Frankly, I bought this fund because I did not know where else to put my money. I did however here that higher inflation was on its way so thought this fund may be a good place to start. It has performed very well and has grown over 5% in just 4 months. I cannot seem to understand why though. Any ideas?:)
 

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I will leave it to others to provide the full explanation but inflation somewhere down the road is always a consideration. Also, can we assume that this is just one investment in your overall portfolio as I wouldn't want to put all of my eggs in one basket.

By the way, XRB is not a Claymore product but rather is an iShares ETF from Blackrock.

http://ca.ishares.com/product_info/fund_overview.do?ticker=XRB

I'll put this question to others out there--what can cause this ETF to rise or fall in value and what do you see as it's future performance given all of the current economic data?
 

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I will leave it to others to provide the full explanation but inflation somewhere down the road is always a consideration. Also, can we assume that this is just one investment in your overall portfolio as I wouldn't want to put all of my eggs in one basket.

By the way, XRB is not a Claymore product but rather is an iShares ETF from Blackrock.

http://ca.ishares.com/product_info/f....do?ticker=XRB

I'll put this question to others out there--what can cause this ETF to rise or fall in value and what do you see as it's future performance given all of the current economic data?
presumably people have heard enough about the possibility of coming inflation and are trying to get a product that will hedge against it
 

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Real return bonds have done well because interest rates are pushed down artificially by the US fed, and because there is no inflation. That will change as soon as the US economy shows some strength. Most other countries have already started to tighten and the pressure is building on the US. When rates go up, real return bonds will drop. Regular bonds may drop faster than real return bonds, but that depends on inflation expectations relative to interest rates.
 

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Flattening yield curve. Real return bonds are primarily long maturity, so the duration is quite high, making their price sensitive to changes in yields. Inflation expectations can remain unchanged but still see large changes in the value of real return bonds when the yield of nominal bonds changes. 5 and 10 year yields have fallen like a rock in the past few months, which has given a nice little return on long duration bonds. For instance, see TLT, which is a long term US treasury etf.
 

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Flattening yield curve. Real return bonds are primarily long maturity, so the duration is quite high, making their price sensitive to changes in yields. Inflation expectations can remain unchanged but still see large changes in the value of real return bonds when the yield of nominal bonds changes. 5 and 10 year yields have fallen like a rock in the past few months, which has given a nice little return on long duration bonds. For instance, see TLT, which is a long term US treasury etf.
I've always believed in bonds as being steady income providers. Now, even this looks shaky,.... :(
 

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If you're buying them for income, go nuts. You'll get ~1.5% over inflation. If you're not going to hold them long-term, understand that the value of real return bonds is quite volatile in $ terms. These are just about the safest thing you can invest your cash in for long-term inflation-protected returns. Hence the low, low yield.
 

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Discussion Starter #8
If you're buying them for income, go nuts. You'll get ~1.5% over inflation. If you're not going to hold them long-term, understand that the value of real return bonds is quite volatile in $ terms. These are just about the safest thing you can invest your cash in for long-term inflation-protected returns. Hence the low, low yield.
Thanks for the info. Not sure what you mean by 'low, low yield' though ... guess thats why I am a Junior member. I guess I need a tutorial on this. Can you clarify for the thick headed.
 

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The Bank of Canada maintains a site with some data on different bond yields:

http://www.bankofcanada.ca/en/rates/bonds.html

Real return bond yields are down to the low 1% range. This is the yield over CPI each year. If you believe the Bank of Canada's promise to maintain inflation around 2%, that's a yield of just over 3% on a long-term bond (like, 30 year).

In contrast, nominal bonds with long maturities are yielding around 3.5%. That difference in yield is what you give up for the inflation hedge.

Of course, unless you hold these (at least close) to maturity, you're likely to get walloped if interest rates rise, as this will decrease the value of these bonds.
 
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