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Why Rate Increases Are Almost Certainly Good News for Investors
Interest rates have been so low for so long that rate increases in 2013 have no doubt surprised some investors. Per the Treasury's site, the five-year Treasury rate went from 0.76 percent at the start of the year to 1.63 percent through August 19, and the 10-year Treasury rate increased from 1.86 percent to 2.88 percent over this period. These rate increases have prod....
Finding Good Yield Data on Bond Funds
You might think finding accurate bond fund yield information would be simple. From my experience, you’d be wrong. It’s incredibly difficult to sort through the myriad of yield measures published by the fund companies themselves or third parties like Morningstar, or even dictated by regulatory bodies like the SEC.

The Gold Standard: Yield-to-Maturity

A good rule of thumb is to ignore any yield measure other than yield-to-maturity (and possibly yield-....
Science vs. Speculation in Post Crisis Bond Markets
This post is obviously a bit anecdotal, but I’ve been thinking about three prominent predictions from the past few years and analyzing those predictions relative to what the market was forecasting and what academic research had to say. The three predictions were:
  1. Interest rates would increase so, you should stick to short-term bonds (if investing in bonds at all).
  2. The municipal market would experience significant trouble in 2011.
  3. ....
The Long Slog of Europe's Debt Crisis
Europe’s debt crisis is entering its fourth year, and I wanted to pass along an update since it’s not getting the news attention it once was. In some ways, that’s good news. Part of the reason Europe is getting less attention is because its bond markets aren’t in the full blown crisis mode they’ve faced during the past three years.
 
Yield Spreads Relative to Germany
 
Carry Premium 101
Carry Premium: Returns
 
The carry premium is the tendency for yield-seeking strategies to generate positive excess returns. The three most well-known versions of the carry strategy involve high-quality fixed income, corporate bonds and currencies:
  • In high-quality fixed income, a naïve example of the carry strategy would seek out the highest yielding point on the Treasury yield curve and own the corre....
Market-Based Forecasts
I’m taking a break this week from my posts on return premiums to focus on market-based forecasts (a topic that came up in a recent presentation I did for a group out in Oregon). Humans can’t help themselves from forecasting, and many unfortunately act on their own market forecasts or those of the “experts,” which tend to do more harm than good. Yet we can look to the markets themselves for forecasts of the future — forecasts that I would argue are generally more useful than ....
Why Europe's Problems Matter

In recent weeks I’ve been asked why the world’s financial markets and pundits are so concerned about Europe. It’s a fair question, since the epicenter of the crisis — Greece — is a relatively small economy. Nevertheless, there’s a logical answer to the question: banks.

If the problematic European debt was spread across a large number of investors and not held in large quantities by commercial and investment banks, it’s unlikely this story would have the legs it does. But that isn’t the case. ....