Tom’s Thoughts on a Down Market Effect on Bonds
Transcript:
Easan Arulanantham:
So how do I protect my fix? Are my bonds and my bond investments? Should I, you know, should I be looking to change how my duration or something like that to protect myself?
Tom Vaughan:
Yeah, because the one part that’s going to get probably hit the hardest here and has been hit the hardest so far, you know that all the stock market indexes are up, you know, at least a little bit. But the bond market is down for the year. And Matter of fact, the first quarter of this year was one of the worst quarters for the bond market, at least in price and total return standpoint at over the, for the last 20 years. So the way that you protect yourself, you know, from that is just essentially up, maybe I’ll share my current portfolio for the bond side here real quickly, too. Because I do think this is an important area.
There we go. Okay, so this is the bond portfolio that we’re using right now, as our, you know, overall bond market piece. So, to answer your question, yeah, short term. So I got short term governments, short term tips, and short term, high yield, all of those are short term, you know, less than five years, some of them are even shorter than that. There’s not a lot of money to be made here. But in terms of a bad down market, these will do better. As far as that goes, probably my favorite piece out of all of this. And you can kind of see that because we have a little bit more weight in here is a short term tip. So a tip is a treasury inflation, protection security. So again, this is designed for this environment, these actually pay slightly higher kind of interest rates as the interest rates go up, which tends to protect the price from falling, because there’s an inverse relationship.
When interest rates go up on bonds, price goes down. And so these tend to not go down as much, if at all. And these are doing quite well in the combination of being short term. And a tip seems to help. And then I have two pieces here that go that go in the opposite direction. So these are both inverse or short positions. They go up when the bond market goes down. And so these are my protection pieces, because I feel like inflation is just starting. I think we’re just starting to see the increase in bond yields, which will drive the price down and that would help these so that’s my look at how to handle kind of the bond market side of the inflation problem that we’re dealing with.