Gyroscopic Investing

I've been thoroughly interested in the recent thread "what economic cycle are we in?" and am starting to see the value of Long Term Bonds. I've had troubles in the past buying into the idea as I thought deflation was unlikely in the current monetary and political environment.  Low yields and long time horizon (for me), lessened the appeal for me as well.

Now that I'm looking to buy long bonds, is there a place for corporate bonds or will these not behave the same way in a deflationary environment (increasing coupon value).  There's a Canadian index fund with all long 20+ year corporate bonds with very stable business models - utilities, pipelines, highways, airports, telecom, etc. higher risk I know but I think the returns would be better than government bonds with my long time horizon.

Fund in question:
http://www.theglobeandmail.com/globe-in ... /?id=75747
I want to stick to index funds since I'm adding to positions frequently and want to minimize trade fees.

Corporate bonds are not appropriate for the PP.

Also, I would probably not buy corporate bonds in a fund because it will behave similarly to a stock fund, especially during a crisis. If you wanted to buy individual corporate bonds (or Munis, for that matter) and hold them purely for income in your VP, I think that would be sane. But you're exposing yourself to call risk and default risk. If rates rise, your bonds may be called back, and if you chose the company (or municipality) unwisely and they go out of business, you're boned.

There's a good reason why some bonds return more income. All the highest-income-producing Munis, for example, are from California cities that are nearly bankrupt.

I think it would be a lot more trouble than its worth.

Hypothetically if you could find a corporate bond that was extremely high quality with no call option and had long duration than it would act very similar to a long term government bond. But why not just buy the long term gov bond? Any additional yield you would be getting would simply be compensation for less liquidity and more equity like risk.

Stunt wrote: Now that I'm looking to buy long bonds, is there a place for corporate bonds or will these not behave the same way in a deflationary environment (increasing coupon value).  There's a Canadian index fund with all long 20+ year corporate bonds with very stable business models - utilities, pipelines, highways, airports, telecom, etc. higher risk I know but I think the returns would be better than government bonds with my long time horizon.

Only as a portion of the equity allocation.

melveyr wrote: I think it would be a lot more trouble than its worth.

Hypothetically if you could find a corporate bond that was extremely high quality with no call option and had long duration than it would act very similar to a long term government bond. But why not just buy the long term gov bond? Any additional yield you would be getting would simply be compensation for less liquidity and more equity like risk.

Less liquidity?  How's that?

moda0306 wrote:

melveyr wrote: I think it would be a lot more trouble than its worth.

Hypothetically if you could find a corporate bond that was extremely high quality with no call option and had long duration than it would act very similar to a long term government bond. But why not just buy the long term gov bond? Any additional yield you would be getting would simply be compensation for less liquidity and more equity like risk.

Less liquidity?  How's that?

No corporate bond is going to have a market as liquid as the treasury market.