I’m wondering about the relationship between the instability with bond insurers and the bond market in general. Bond funds, like Vanguard’s VBMXF (an intermediate term bond fund) have risen noticeably in the past month. It’s made up of about 10% government bonds and the rest are “high quality” commercial bonds. I’m wondering why this fund hasn’t dropped in value. Any thoughts?
Perhaps it’s due to money pulled out of the stock market going into safer investments......
I would guess that the corporate bonds are bonds issued directly by the various companies in a bond issue, e.g. a Ford Motor Company 30-year bond of let’s say 4%.
The stuff that is killing Ambac et al are “derivative” bonds, a/k/a CDO’s or CMO’s: a big bunch of dodgy mortgages that magically become AAA-rated when you have a hundred of them averaged out.
Conventional bonds like what your fund is talking about are going up in price as interest rates go down. I do not offer an opinion as to whether this will continue!
When bailing my 401k out of the S&P500 last summer, I looked at the one offering my 401k plan has in the “high grade corporate bond” category. It was 60% invested in “mortgage related securities”. No thanks. My nest egg is safe in what is essentially a cash fund (US Government debt only). But it really scares me that a large percentage of people in this country wouldn’t even know how to find out what a mutual fund actually holds before putting a big chunk of their retirement savings in it. “High Grade Corporate Bond” sounds so conservative and safe, but it’s often a bald-faced lie.