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June 2015: A Primer For Managing Bonds In A Sustained Bond Bear Market

Download: Coxe Strategy Journal: June 2015

This issue of The Journal aims to explain to clients the risks and rewards from what we believe is an unfolding major bond bear market—with specific discussions of how to manage bond portfolios. We also discuss how companies should plan and restructure their bond liabilities.

We undertake this project because of our conviction that bonds are unlikely to behave the way they have for the overwhelming majority of the time for the past 34 years.
What we have since 2009 called “financial heroin” has been flowing freely. But Stein’s Law decrees that something that cannot continue forever will stop.

There is no doubt that the heroin injections have produced addiction on a grand scale: witness the “taper tantrums” in Treasurys when the Fed hinted that higher rates were on the way.

The sheer scale of the monetary expansions, accompanied by a doubling of the US National Debt, (an excess widely mimicked globally), means that the mostly well-behaved and mostly dull bond markets of recent decades are headed for fragility and fear on unprecedented scale.

Whether you are a private investor, an institutional investor, a pension fund manager, or a corporate treasurer, it is time to prepare for the biggest bond bear market since the mid-1970s.

This creature has been on the Endangered Species List since March 1981 when President Reagan left hospital after barely surviving an assassination attempt. (Indeed, in recent years, there had been growing belief that seeing the bond bear was only modestly more probable than sighting a unicorn.)

Bear cubs were born occasionally, but the trend remained friendly to the Bond Bull. That Bull never had to face a full-grown, ravenous, Bond Grizzly—the species last seen in the Seventies.


This issue is a companion
to our May issue of the Coxe Strategy Journal, THINK NEGATIVE THOUGHTS.


A PRIMER FOR MANAGING BONDS IN A SUSTAINED BOND BEAR MARKET

The Greatest Bond Bull Market—Ever
2.22%: When something cannot go on forever, it will stop
BOND PORTFOLIO STRATEGY IN A NEW ERA:

  • What Should a Mutual Fund Bond Portfolio Manager Do?
  • What Should a Pension Fund Bond Manager Do?
  • What Should CFOs Do?
  • What Should Individual Investors Do?

Will Central Banks Lower Rates if Growth Slows?
The Bond Bear, the Russian Bear, and the New World Disorder
ASSET ALLOCATION
INVESTMENT RECOMMENDATIONS