econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 27 January 2016

When The Sky Falls: Bonds, Utility Bonds

by Richard Stavros

Investing Daily Article of the Week

The global market turmoil in recent weeks could just be the beginning of the beginning of yet more volatility.

Although investors had been expecting that the Federal Reserve's first rate hike in nearly a decade would be accompanied by a return to growth, the new year has been a rude awakening thus far.

Fears of deflation have forced investors back into traditional safe havens such as gold, high-quality sovereign debt and U.S. Treasuries. Indeed, yields on the 10-year even fell below 2%, while some sovereign debt is actually paying negative yields.

Where should investors turn amid such uncertainty? Bonds issued by regulated electric utilities could offer investors another safe haven in this environment. Their income and stability could help investors diversify some of the usual wealth-preservation strategies that they've pursued in recent weeks.

When building a fixed-income portfolio, investors should view diversification the same way as they do when investing in equities: Diversification within the asset class is just as important.

"Creating a portfolio with material representation from all fixed-income asset classes is one of the pillars of good fixed-income investing," is the standard advice, and we believe electric utility bonds offer a compelling part of any fixed-income diversification strategy.

In fact, some high-quality, investment-grade utility bonds are yielding between 4% and 6%, and a select few can still be bought at a discount to par.

But even at a premium, utility bonds could still be a compelling investment because of how they managed to hold their value while continuing to deliver income during past periods of deflation and market turmoil.

Although many investors loathe the idea of buying a bond above par, a premium bond can still be attractive if its yield to maturity is significantly greater than current market yields - the premium would then be offset by the cash flows paid out during the remaining life of the bond.

Where the Utility Bonds Are

Although dividend stocks have usurped fixed-income investments as a mainstay of income investors' portfolios in recent years, bonds are an important component of any investment portfolio. To that end, we've been reviewing Utility Forecaster's bond sleeve with an eye toward upgrading our holdings over the next few months.

As a starting point, we used our Safety Rating System to identify those utilities with superior fundamentals, particularly those with scores between 6 and 8. While we ordinarily use our Safety Rating System to gauge the sustainability of a company's dividend, we believe it can be quite effective as an initial credit screen.

After all, if a utility's dividends are not safe, then this would be tantamount to saying that its ability to pay its debts is similarly challenged. So it stands to reason that a utility that has a high probability of paying its dividend can also pay its debts.

Of course, we won't stop there. We're also looking for higher-quality securities that have an investment-grade rating.

Naturally, there are numerous other considerations, including setting a minimum yield to maturity that's attractive for premium bonds, as well as duration, convexity, and other such details.

But the companies that scored a perfect 8 on our Safety Rating System are an excellent starting point for further research.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Investing Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Investing


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
The Surprising Pevalence of Surprises in Export Specialisation
The Destruction of the Existing Workforce
News Blog
The Worst Countries For Drinking During Pregnancy
What We Read Today 24 January 2017
Best Ways To Protect Yourself Online
Richmond Fed Manufacturing Survey Improves In January 2017.
December 2016 Headline Existing Home Sales Hampered By Historically Low Inventory Levels
A New Order Of The Ages
How Bond Investors Were Fooled Twice
Infographic Of The Day: Crowdfunding
Early Headlines: Asia Stocks Mixed, Dollar Down, Oil Up, China May Replace US In TPP, Trump Freezes Feds' Hiring, Trump Files 'Secret' Transfer Papers, May To Visit China And More
January 23, 2017 Weather and Climate Report - NOAA Continues ENSO Neutral Denial
Documentary Of The Week: China's Wealth, Collapse, And Environmental Nightmare
Where Trump Stands On Twitter
Is This Really The Final Word On Whether Calorie-restricted Diets Make You Live Longer?
Investing Blog
Investing,com Weekly Wrap-up 24 January 2017
Netflix And Co. Surpass DVD And Blu-ray Sales
Opinion Blog
Bill Maher 2017 Season Premier
Trumping World Trade
Precious Metals Blog
A Slow Start For The Week Would Be Constructive For Gold
Live Markets
24Jan2017 Market Close: Wall Street Exuberant Closing With New Historic Highs, Trump Effect Still Working, Analysts Claim Another 5 Percent Higher Possible
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government































 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved