Comments on: Opportunity in Real Return Bonds? http://www.canadiancapitalist.com/opportunity-in-real-return-bonds/ Helping you invest and prosper Sat, 11 Feb 2012 19:27:54 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Patrick http://www.canadiancapitalist.com/opportunity-in-real-return-bonds/#comment-206032 Patrick Mon, 07 Dec 2009 06:38:50 +0000 http://www.canadiancapitalist.com/?p=1381#comment-206032 @cg: Besides the obvious fact that the falling of bond prices does NOT imply that they will keep falling, you might be interested to know that bond funds have this interesting feature called "<a href="http://www.efficientfrontier.com/ef/999/duration.htm" rel="nofollow">duration</a>". Put simply: yes, bond prices may fall, but that is accompanied by higher interest rates, and then your bonds pay interest ("coupons"), those can be reinvested at the higher rate. The upshot is that after a certain time (often 6-12 years or so, depending on the fund) the bond investor recovers all money lost by the increase in interest rates, and from that point onward, the investor is the beneficiary of the higher rates. For this reason, if you invest in bond funds whose duration matches your investment horizon, then you don't particularly care about interest rate fluctuations. If the duration is shorter than your investment horizon, then you actually welcome interest rate increases! (This despite the disheartening effect they would have on your principal.) @cg: Besides the obvious fact that the falling of bond prices does NOT imply that they will keep falling, you might be interested to know that bond funds have this interesting feature called “duration“. Put simply: yes, bond prices may fall, but that is accompanied by higher interest rates, and then your bonds pay interest (“coupons”), those can be reinvested at the higher rate. The upshot is that after a certain time (often 6-12 years or so, depending on the fund) the bond investor recovers all money lost by the increase in interest rates, and from that point onward, the investor is the beneficiary of the higher rates.

For this reason, if you invest in bond funds whose duration matches your investment horizon, then you don’t particularly care about interest rate fluctuations. If the duration is shorter than your investment horizon, then you actually welcome interest rate increases! (This despite the disheartening effect they would have on your principal.)

]]> By: cg http://www.canadiancapitalist.com/opportunity-in-real-return-bonds/#comment-164136 cg Mon, 27 Oct 2008 21:04:50 +0000 http://www.canadiancapitalist.com/?p=1381#comment-164136 RR bonds keep going down, so don't understand when article says good to buy if yield gets to 3%. Sure, you get more interest, but your capital value of the bonds is dropping. I hold some RR Bond mutual funds that keep losing avlue (TD Fund), selling time? RR bonds keep going down, so don’t understand when article says good to buy if yield gets to 3%. Sure, you get more interest, but your capital value of the bonds is dropping.

I hold some RR Bond mutual funds that keep losing avlue (TD Fund), selling time?

]]> By: squawkfox » Hooters, Owls, and Woots Oh My! http://www.canadiancapitalist.com/opportunity-in-real-return-bonds/#comment-161558 squawkfox » Hooters, Owls, and Woots Oh My! Sat, 18 Oct 2008 08:08:51 +0000 http://www.canadiancapitalist.com/?p=1381#comment-161558 [...] Opportunity in Real Return Bonds | Canadian Capitalist [...] [...] Opportunity in Real Return Bonds | Canadian Capitalist [...]

]]> By: Big Cajun Man http://www.canadiancapitalist.com/opportunity-in-real-return-bonds/#comment-161376 Big Cajun Man Fri, 17 Oct 2008 12:57:25 +0000 http://www.canadiancapitalist.com/?p=1381#comment-161376 Didn't know anything about this, good post! Thanks, C8j Didn’t know anything about this, good post! Thanks, C8j

]]> By: Weekend Links - Oct 17, 2008 | Million Dollar Journey http://www.canadiancapitalist.com/opportunity-in-real-return-bonds/#comment-161353 Weekend Links - Oct 17, 2008 | Million Dollar Journey Fri, 17 Oct 2008 10:30:30 +0000 http://www.canadiancapitalist.com/?p=1381#comment-161353 [...] Canadian Capitalist thinks that there might be an opportunity in real return bonds. [...] [...] Canadian Capitalist thinks that there might be an opportunity in real return bonds. [...]

]]> By: Phil S http://www.canadiancapitalist.com/opportunity-in-real-return-bonds/#comment-161226 Phil S Thu, 16 Oct 2008 23:50:37 +0000 http://www.canadiancapitalist.com/?p=1381#comment-161226 I use BMO Investorline and I also manage my mother's account in TD Waterhouse. You can purchase Government of Canada Real Return Bonds through both of them. I bought my GoC Real Return Bonds a few years ago and back then, I had to talk to someone at the bond desk to execute the purchase. While falling commodity prices might imply that there may be a deflationary period ahead... Judging by how much cash is being injected into the markets by governments around the world, I personally can't envision how this supercharged money supply won't ultimately create hyper-inflation as the world gets flooded with cheap money. I use BMO Investorline and I also manage my mother’s account in TD Waterhouse. You can purchase Government of Canada Real Return Bonds through both of them. I bought my GoC Real Return Bonds a few years ago and back then, I had to talk to someone at the bond desk to execute the purchase.

While falling commodity prices might imply that there may be a deflationary period ahead… Judging by how much cash is being injected into the markets by governments around the world, I personally can’t envision how this supercharged money supply won’t ultimately create hyper-inflation as the world gets flooded with cheap money.

]]> By: Returns Reaper http://www.canadiancapitalist.com/opportunity-in-real-return-bonds/#comment-161152 Returns Reaper Thu, 16 Oct 2008 17:03:03 +0000 http://www.canadiancapitalist.com/?p=1381#comment-161152 Does anyone know what the options are for purchasing Canadian RRBs? Barclay's iUnits Real Return Bond Index ETF (XRB) would be one way. I believe the MER is 0.35%. But I wonder what the options are for purchasing the bonds directly. The bylo FAQ indicates they can be purchased at 'Most full service and discount brokers'. I tried digging around on E*Trade and they didn't appear to offer them, unless they were hidden amongst the long lists of standard Canadian Bonds. Does anyone know which discount brokers sell Canadian RRBs? Does anyone know what the options are for purchasing Canadian RRBs?

Barclay’s iUnits Real Return Bond Index ETF (XRB) would be one way. I believe the MER is 0.35%.

But I wonder what the options are for purchasing the bonds directly. The bylo FAQ indicates they can be purchased at ‘Most full service and discount brokers’. I tried digging around on E*Trade and they didn’t appear to offer them, unless they were hidden amongst the long lists of standard Canadian Bonds.

Does anyone know which discount brokers sell Canadian RRBs?

]]> By: Canadian Capitalist http://www.canadiancapitalist.com/opportunity-in-real-return-bonds/#comment-161148 Canadian Capitalist Thu, 16 Oct 2008 16:16:59 +0000 http://www.canadiancapitalist.com/?p=1381#comment-161148 DGI: Incredible isn't it? So much for "decoupling". I think in deflationary periods RRB principal is revised down. That's why they have sold off. But I think a 3% real return is attractive even in a deflationary environment. Of course, regular bonds will do much better. Pretty much everything is on sale now -- even with the USD strength, US stocks are still down a lot for Canadian investors. Only fixed income is doing well. DGI: Incredible isn’t it? So much for “decoupling”.

I think in deflationary periods RRB principal is revised down. That’s why they have sold off. But I think a 3% real return is attractive even in a deflationary environment. Of course, regular bonds will do much better.

Pretty much everything is on sale now — even with the USD strength, US stocks are still down a lot for Canadian investors. Only fixed income is doing well.

]]> By: Dividend Growth Investor http://www.canadiancapitalist.com/opportunity-in-real-return-bonds/#comment-161142 Dividend Growth Investor Thu, 16 Oct 2008 14:22:07 +0000 http://www.canadiancapitalist.com/?p=1381#comment-161142 It's very funny how things changed in 3 short months. In july Oil hit $147/barrel and we were going to see $200, $500, $1000 oil.. One quarter later oil has dropped over 50% and now all of a sudden we are worried about deflation. There's one thing I don't know about real return bonds - if there's deflation do the adjust your principal downwards or do they keep it at the last inflationary hike? ( or should I say predeflationary levels). If they don't adjust real return bonds for deflation, then go for it.. However it is during market crises like the one we are currently in when on realizes that diversification is important. It's funny however that almost all assets including commodities, foreign and domestic stocks ( small, mid, large) are lower in 2008. The assets that are making money are fixed income and US dollars. It’s very funny how things changed in 3 short months. In july Oil hit $147/barrel and we were going to see $200, $500, $1000 oil.. One quarter later oil has dropped over 50% and now all of a sudden we are worried about deflation.

There’s one thing I don’t know about real return bonds – if there’s deflation do the adjust your principal downwards or do they keep it at the last inflationary hike? ( or should I say predeflationary levels).

If they don’t adjust real return bonds for deflation, then go for it.. However it is during market crises like the one we are currently in when on realizes that diversification is important. It’s funny however that almost all assets including commodities, foreign and domestic stocks ( small, mid, large) are lower in 2008. The assets that are making money are fixed income and US dollars.

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