I'm a newbie so this forum seemed a good place to start. I've been reading Market-Ticker for a couple of years, and have learned a bit. Investing & money mgt. were def. not part of my college education, although they should have been. When it came time to rollover my 401K to an IRA I chose FIBAX, a Fidelity mutual fund. Min. investment is $100K and I added some to account for +/- 10% up & downs. Since its an IRA, the dividends get reinvested. If I'm following this correctly, as the yield on 3-7 yr. treasuries goes up, the price per share goes down. Seems to me if that is indeed the case that I've made a bet that yields will stay low, which doesn't appear likely. Set me straight, financial gurus. Thx.

Bond prices move inverse to yield. If bond yields for new issues rise, then the old issue you're holding at a lower rate go down in value.

Say yesterday you bougt a CD from the bank for 5 years at 5%. The next day, they start selling 5 year CD's at 6%. Which one do you want to own for the next 5 years? If both could be bought in an open market, who's would be worth more.

Basic time value of money and discounting with this....nothing more. If you expect rates to go up sharply, you would not want to own something that is fixed at the old rates unless it's a 30 year mortgage :)

86thebs, thanks for the reply. "Bond prices move inverse to yield." Must be some blending going on in this mutual fund to stay in play. Yields (coupon rates) vary from 1.25->2.875 on 3-7 year treasuries, respectively. If "the play" were simply yields go up, bond shares go down, this mutual fund would have gone belly up after the first inflection (??).
Guess I should be in a "pure" bond play. When there is a flight to quality, which historically has meant treasuries, I want to benefit. Unless the Fed's actions of flooding the market w/ liquidity dilutes the value of govt. debt. In any case, I'm not sure the fund manager isn't rolling with the markets by rolling in and out of treasuries that mature at different times. Very confusing to me, but thanks again for your reply.

Rharper,

That's how bonds work.. the price is directly inverse to yield.

considering where rates are and how they got there, you may want to reconsider your plan.

The first thing you might want to ponder on is why Bill Gross's PIMCO.. the largest bond fund in the world.. currently owns no bonds.

He owns bonds.

not treasury or any government related bonds.

http://www.zerohedge.com/article/exclusi....

Cjworkman

Thanks, and point taken. Okay, time to man up and bail on that plan. Since 12/1 its taken the big dive from 11/share --> 10.49. This thing is like treading water, value drops, pays 3 cents/share in dividends, so my overall value just hangs there. No loss, other than the initial haircut, but no gains either. The fellas at MW seem to think we're about ready to plunge. Silver seemed a good idea before it hit $40. Any recommendations on smart investment strategies? Large caps seem overbought, and we've got plenty of guns and butter here in Oregon.

Rh- there is the issue everyone has.

Large cap- overbought
Commodity - all time highs
Bonds- rates have no place to go but up
Cash- bad with high inflation
Real-estate - can't go higher without higher employment and wages

We need another crash.

He owns bonds, Government, and other. His net exposure may be zero, but Pimco owns bonds.

isn't your net exposure being zero effectively like not owning any..

RH,

I wouldn't put it all in one place. That's for sure. I'd have half of it spread among inflation hedges, some in safed fixed return investments and some in foreign currency.

If you put it all in inflation hedges and some how the credit complex collapses again (housing price crash round 2), you could get killed.

I consider myself hedged by having a mortgage (which in the event of massive inflation will become cheap to pay off), precious metals, and cash in low interest fixed investments.

if you are all on one side of the inflation/deflation argument.. you can get ruined. obviously things look more inflationary at the moment, but you'd be surprised how quickly that can change. Remember housing prices are still falling in most places and wages are stagnant, those are both very powerful deflationary/stagflationary forces.

We're staying the course until QE2 is done. Ride the wave.

Effectively, yes, but you still "own" them. If I own a stock and write calls against it do I own it? It's not merely a semantic argument (especially in PIMCO's case). Has anybody checked the 30-Year repo screen latley...? It was still quite red before I left last week.