Professionals Often Stumble With Corporate Bonds

 Professionals in the financial industry constantly get the bond

market wrong. Note: I’m referring to so-called experts, not amateurs.

                       

They make up well over 80% of the market so they should know

better. And the media are usually also in error, when reporting about them.

                       

At the first sign of economic problems, there is talk about corporate defaults and the effect on the bond market. How bond prices are bound to fall because of the risk of possible defaults. And with that talk, the bond market weakens and prices do fall.

                       

But remember: The possibility of default is very quickly factored into bond prices. And the lower the price, the higher the yield, as a direct relationship.

                       

Furthermore, the media hardly ever discuss how you can avoid loss, along with any inflation hit, with proper use of bond duration. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)