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Junk Bond and Short Duration Bond

US 10-Year Treasury bonds lost almost 10% since taper talk started in May 22; US investment grade corporate bonds down 6% and junk bonds 2.5%.  To put it another way, the higher the credit rating of a bond, the bigger the loss – with the lowest-rated junk only just losing money, according to Barclay’s indices.

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中国经济增长几年来连续雄冠全球,A股却连续“熊冠全球”。 上证综合指数如今已从2009年8月的高位狂跌43%,市值蒸发了7480亿美元,跌幅仅次于希腊的ASE指数。否极泰来,有迹象,中国股市即将转盘。 2013-08-16,图表分析专家戴若·顾比表示上证指数整体趋势是上行,是时候开始进入市场,为多头仓位增加头寸,但应该设定正确的止损价。由于上涨需要很多新资金进入股市来推动,今年年底前上证指数不可能上涨至一万点,但年底可能涨到3000点。

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Global Sell-Off Jun 2013 – A Buying Opportunity!

Due to ultra-loose global monetary policy, central banks led by the Fed have flooded financial markets with more than $12 tn of extra liquidity since the financial crisis.  Most of these monies are ‘pumped’ into emerging markets as they are seen to be the growth engine of the world, resulting escalating asset pricing.  Since May 22 till Jun 10, MSCI Emerging Market is down 8.4%; MSCI World down 4.45%; MSCI Asia Ex Japan down 7.55%; MSCI Europe down 4.3% and S&P 500 is down merely 2.07%. The three-week sell-off erased $1.9 trillion of global equity value.  The sell-off is not limited to equities, government bonds such as Singapore Bond is also affected by the recent volatilities, pushing its 10-year yields to a 22-month high – its 3.125% note due in September 2022 tumbled to S$110.42 from S$110.98 June 7.  The yield rose 6 basis points or 0.06 percentage point to 1.89%, highest since Aug 2, 2011.

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Why 1994 US Bond Crisis Will Not Happen Again

From 1985 till 2009, there were 3 times bond fund generated negative returns:  1994 with lost of 4.7%, 1999 with lost of 1.2% and 2008 with lost of 7.8%.In 1994, US Bond crash.  We know what happened in 2008 – Lehman Brother Saga.  Hence among the three incidents, 1994 bond crisis is the most probable scenario that we could face once again – when the Fed being to taper and eventually hike the interest rate.  Why?  On 1994-02-04, the Fed raised the interest rates unexpectedly and the rate was raised from 6.2% in February to 7.75% in mid-September of 1994, about 155 basics point within 7 months knocking off more than $600 billion off the value of US bonds.  Will history repeat again?

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How QE exit would impact bond?

Ben Bernanke, Fed chairman, last month said that bond purchases designed to hold down interest rates could slow in coming months as the US recovers, a shift that could have far-reaching consequences for US debt markets, perhaps signalling a turning point in the 30-year bull market for bonds. US 10-year government bonds rose from 1.6% at the start of May to 2.1% on May 31.  Anyone investing in bond funds lost money in May!  US funds that invest in higher-rated bonds with average maturities of under 10 years lost an average 1.8% in May, making their worst performance since the depths of the financial crisis in October 2008.  PIMCO Total Return Fund, with AUM of $293 billion, run by Bond King – Bill Gross, lost 2.2% in May, making it one of the worst performers in May.

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