Breaking News
Investing Pro 0
Free Webinar - Crude Oil Trading 2023 | Thursday, February 9, 2023 | 01:00PM PST Enroll Now

Tomorrow’s Bond Headlines, Today, Right Here

By Contrarian Outlook (Brett Owens)BondsNov 30, 2022 04:30AM ET
www.investing.com/analysis/tomorrows-bond-headlines-today-right-here-200632940
Tomorrow’s Bond Headlines, Today, Right Here
By Contrarian Outlook (Brett Owens)   |  Nov 30, 2022 04:30AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

“Get tomorrow’s Bloomberg headline, today, at Contrarian Outlook!”

Our new slogan for 2023? Perhaps. I bring it up because our bond recession trade has already gained steam into an outright bandwagon.

Just three weeks ago, we contrarians shouted alone in the dividend woods. “Buy these safe bonds paying 4.2% before a 2023 recession!”

Our logic was simple. The 10-year Treasury bond hadn’t paid 4% or more in 14 years. With stocks looking shaky (to say the least!), the 4-handle coupon was attracting some whale buyers, including our man the “bond god” Jeffrey Gundlach (more on him in a moment).

The whales were hungry. They scooped up these Treasuries left and right, sinking the yield. As bonds become more attractive, their payouts plummet. The 10-year’s yield is already down to 3.7% as I write these words.

The yield drop resulted in a price pop. The fund we specifically recommended, iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT), is up a nifty 9%+ in less than three weeks. This gain annualizes to a 160% total return. Niiiiiiiiice.

Now, the bigwigs at Bloomberg want to hop on our bandwagon. Just this Sunday, the publication reported The Treasury Market’s Big Recession Trade Is Gathering Momentum.

Look, the momentum has already been gathered. We made 9% in weeks from a safe bond fund! You literally read it here first.

Now that the easy money has been made, we original thinkers have two choices:

  1. “Chase” the bandwagon we started (and Bloomberg promoted) with late money. Or,
  2. Find tomorrow’s next mainstream headline, today.

Bloomberg-Site-Logo
Bloomberg-Site-Logo

Of course we’re looking past the vanilla crowd for our next original idea. We’ll buy it now, so that they can rush in later. Heck, they can even take the credit. We don’t care. We are laser-focused on big yields and potential profits, in that order.

In this spirit, we turn back to our bond hero Mr. Gundlach. This year, his DoubleLine Income Solutions Fund (NYSE:DSL) has been thrashed alongside most other bond funds!

Now, Gundlach’s fund did not suffer because he and his DoubleLine team picked bad bonds. Their bonds—some of which yield 7.5%, 9.25% and even 10.25%—are paying just find. DSL has not had an income problem.

It has had an interest rate problem.

Higher rates hurt funds like DSL two ways. First, they dent the price of the current portfolio. As rates rise, bond prices decline. After all, who wants to be locked into a fixed payment when rates are rising?

Second, rising short-term rates raise DSL’s borrowing costs. As a closed-end fund, the DoubleLine team has been able to borrow money for next-to-nothing in recent years.

Why wouldn’t they take more of those 7.5% to 10.25% coupons all day long when they can borrow at 1% or even 2%?

But when short-term rates rise, so does DSL’s cost of borrowing. Which does impact our dividend income a bit.

Fear not. There is light at the end of the tunnel. The Federal Reserve is almost done hiking short-term rates. Which means DSL’s cost of capital will soon hit its ceiling and eventually decline when we slide into the anticipated 2023 recession.

Also, the prices of its bonds have already begun rising, thanks to the break in the 10-year Treasury yield. Sure, 2022 has been a terrible year to date. But as with TLT, this poor recent performance presents a big opportunity for us mindful income seekers.

DSL investors have three ways to win here. First, the fund pays an electric 11.5% yield. Next, its NAV is likely to rise as both short and long rates decline. And finally, the fund trades today at a 4% discount, which means we are getting paid to ride shotgun with Gundlach.

DSL: 3 Ways to Win
DSL-3-Ways
DSL-3-Ways

And oh, by the way, DSL dishes its dividend monthly. That’s almost 1% every 30 days! Unheard of.

Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, "7 Great Dividend Growth Stocks for a Secure Retirement."

Tomorrow’s Bond Headlines, Today, Right Here
 

Related Articles

Tomorrow’s Bond Headlines, Today, Right Here

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email