More Money Went into Bonds Funds in 2009 Than in the Last Ten Years

The CNBC interview post below with Marilyn Cohen (from Envision Capital and author of “Bonds Now!: Making Money in the New Fixed Income Landscape“) is a good watch for anyone interested in fixed income. One key statistic that caught my attention was Cohen’s claim that more money went into bond funds last year than went into bond funds in the past ten years. These investments have been driven by baby boomers who are fed up with the stock market and wealthy investors piling into municipal bonds looking to shield dividend income from taxes.

Here are some highlights from the interview:

1. There is a bond fund bubble. There are more flows into bond funds than ever before. More money went into bond funds in 2009 than in the past ten years (it seemed like she was implying more than in the previous ten years combined).
2. Buyer beware with bonds. Do the same research you would do before buying stocks.
3. Book some of the profits in bond funds now. Investors in long-term funds will get massacred when rates increase as everyone knows they will.
4. Corporate bond funds look good as corporate balance sheets are getting healthier.
5. There is a large disconnect between the finances of states, counties, and cities, and the low yields on municipal bond funds.
6. Some municipalities will end up going broke. Good quality states include Texas, Georgia, and Tennessee.
7. There is a flight to municipal bonds unlike any seen before by investors fleeing higher taxes. Supply has also gone down because of “Build America” bonds which provide issuers a 35% rebate.

Be careful out there!

Full disclosure: long JNK