Investors in even the best bond funds that Wall Street has to offer might be in for a difficult 2020.
Much of the bond market, in my view, is in a bubble – just as tech stocks were in 1999. And bubbles always end badly.
Consider that in November 2019, $12.5 trillion was invested globally in bonds that have negative yields. That's down from a peak of $17 trillion in August, but that's still an absurd amount of money invested globally in bonds that have negative yields. That means investors are paying interest to a borrower to lend the borrower money — which is just as crazy as it sounds. Carl Weinberg, chief economist at High Frequency Economics, notes that a bond with a negative yield is worth less than "a bag of dirt in your basement."
What's more, at various points recently, long-term bonds have been paying lower yields to investors than short-term bonds – a phenomenon known as a negative yield curve, which is typically predictive of a recession sometime down the road.
The lesson is to keep bond maturities short. With bond yields so low, they almost have to rise unless we're entering a period of serious deflation, which seems a remote possibility. And when bond yields rise, total returns on shorter-duration funds will sparkle compared to likely losses on long-term bond funds.
Here are my seven best bond funds to buy for 2020, from least to most risky.
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