Community Chat

[Snowpuppy]

---

@esmeraldagooch wrote:

Since bonds do best when interest rates are low the FED raising interest rates should worry some.  Investors who invested in bonds in the city of Birmingham ,Alabama got the shaft twice when the sewer bonds many assumed were safe went bankrupt.  That woke me up never to trust cities. Now more cities have or are going in the same direction.

---

Muni's are no longer the safe haven they used to be. Many cities are on the brink. Detroit filed bankruptcy and Chicago is in worse financial shape than Detroit.

China dumping our bonds at that rapid pace isn't good for us. We're already broke. Who else is going to buy our debt?

[novamc1]

Any discussion about bonds can get  confusing and disjointed, because the bond market is a complicated, multi-faceted and vast place to place investment bets.

One good thing to remember before getting too confused is the difference between owning an individual bond (such as a municipal bond from a financially strapped city) and owning  shares in a bond fund containing a huge array of municipal bonds from cities and states all over the country.  In a fund that big, a financially failing city's bonds might represent a fraction of one percent of the entire bonds held in the fund.

  Beyond that, there is a difference between owning a city's or state's general obligation bonds vs. its private activity bonds.  It's a lot safer to own shares in a bond mutual fund than to stick one's neck out on a specific bond.  People who don't understand this and don't know what impact it would have on the taxable status of their bonds needs a tax and/or financial advisor.

And the bond market story doesn't end there

.Some funds contain high-quality corporate bonds of various durations (and duration of any bond is important to an investor).

Some funds hold high-yield (otherwise known as "junk" bonds) from municipalities or companies  that are not graded as high as bonds of (for example) a huge blue-chip company but which pay far higher yields.  These bonds and bond funds, too, have different specific or average durations.

Last and not least are U.S. Government securities (Treasury bonds), and these too have different durations, different yields and different prices. 

It's always safer to invest in a large bond mutual fund.  If some bonds fall in price, fall in quality, or get paid off early and rob investors of their anticipated yield, the fund will invest in newer bonds on a continuing basis and even out the ups and downs of the fund's financial return to investors.

No one should say municipal bonds are bad, U. S. bonds are bad, etc.  It's somewhat startling to read some scary and misleading information that gets published on this subject. 

[Burnsite]

I agree, novamc!  Thanks for the informative post.

For an investor I can be a bit careless about how everything is tracking on any given day, but I have found NPR's program "Marketplace" very informative and balanced. 

I no longer watch TV news, even business news.  They just ratchet up the drama too much, usually while offering opinions and sound-byte interviews rather than solid info. 

[novamc1]

You ask:  Who else is going to buy our debt (if not China)?...........

The same investors who have always bought our debt.

I will keep buying U. S government securities by reinvesting monthly in my bond funds with the interest/dividends and capital gains they pay out every 30 days or annually.

Along with me will be the usual bond investors:  mutual funds, pension funds, insurance companies, banks and investors from all over the world. 

The U.S. would have to make world history by defaulting on a debt to make this stop happening. 

[151949]

I am the first to say I don't understand most of what you all are talking about - which is why I should not be investing in the stock market. i have a financial advisor I pay to take care of this for me. However, i do think that if the federal treasury would fail we would all have a lot more to worry about than our investment in treasury bonds.