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yeah, most of my bond funds are flat or slightly down for over a month. But I also own a few bond funds that seem to defy gravity for the moment:
The most interesting of the bunch is SUBFX, which looks like a mirror image of AGG on the chart. I suspected that it must have negative duration and I checked its data on Morningstar, sure enough, it is at -2 years.
Reply to @shalu: Sorry, I must have seen wrong. You are right. But, I think the movements is not about interest rate changes (yet) but more got to the with the mix of bonds the portfolio has.
SUBFX is more correlated to the movements in the stock market, more specifically the financials. YTD it is now ahead of PONDX which seems to have stalled. I have been toying with moving some from PONDX to SUBFX but instead think I will just move into a bank loan/floating rate fund ala NFRIX or PSFIX
Citi strategist Matt King, who sent us this chart in December, put it this way: "Since 2007, credit mutual fund assets have doubled, while dealers' corporate bond inventories have halved. So while in 2007, it would have taken a 50% outflow from mutual funds to double the size of the street's inventory, now if there were to be a 5% outflow it would double the size of the inventory."
The corporate bond inventories of these dealers – big Wall Street banks like Citi – are a casualty of Dodd-Frank regulatory reform, which forced banks to reduce their own balance sheets.
Before Dodd-Frank, Anderson told Business Insider, dealer inventories provided a buffer for these types of situations (albeit on a smaller scale).
Sellers – mutual funds, for example – were able to unload their bonds to the dealers, who would hold on to them just long enough to find another buyer for them.
In other words, the "buffer" of higher inventories on bank balance sheets provided the market with liquidity.
Comments
The most interesting of the bunch is SUBFX, which looks like a mirror image of AGG on the chart. I suspected that it must have negative duration and I checked its data on Morningstar, sure enough, it is at -2 years.
Citi strategist Matt King, who sent us this chart in December, put it this way: "Since 2007, credit mutual fund assets have doubled, while dealers' corporate bond inventories have halved. So while in 2007, it would have taken a 50% outflow from mutual funds to double the size of the street's inventory, now if there were to be a 5% outflow it would double the size of the inventory."
The corporate bond inventories of these dealers – big Wall Street banks like Citi – are a casualty of Dodd-Frank regulatory reform, which forced banks to reduce their own balance sheets.
Before Dodd-Frank, Anderson told Business Insider, dealer inventories provided a buffer for these types of situations (albeit on a smaller scale).
Sellers – mutual funds, for example – were able to unload their bonds to the dealers, who would hold on to them just long enough to find another buyer for them.
In other words, the "buffer" of higher inventories on bank balance sheets provided the market with liquidity.
Now, that buffer is gone.
http://www.businessinsider.com/citi-bond-funds-to-spark-next-crisis-2013-2