On Bond Investing

When it comes to bonds I have four main ideas.

Those are my strategies and simple enough.  But what do I do when they are disagreeing with each other?  I play for time.  I play my best ideas, and wait for the market to make a big move that I can ride.

I have owned long duration Treasury bonds for the past year, but have not owned them only, but other ideas as well.  Being long credit has worked, whether in:

  • Floating rate loans,
  • Long duration corporates, or
  • Bank preferred stocks

That does not mean I did not have my failures.  I lost a decent amount of money expecting that the Swiss National Bank [SNB] would eventually break its peg versus the euro.  I still have a small bet on that, and still expect that I will make money on the trade, as the position of the SNB is becoming more difficult by the day.

My goal as a fixed income investor is to make money.  Unlike most fixed income investors, my goal is to make a lot of money when it is favorable to do so, and tread water the rest of the time.  I’m treading water now.  Rates are low; yields are low – there aren’t that many distortions to take advantage of.

I await an environment with more opportunities.  I wonder if this is how Seth Klarman feels toward the end of a bull market.  I’m just schnitzeling, and waiting for some real opportunities to show up.

As it is, I use two proxies to guide me: AGG and CSJ.  My performance over the last year was between the two.  In the short run, I look to exceed CSJ.  In the long run, I look to exceed AGG.

Full disclosure: long CSJ