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Bond Fund Returns Could Shock Jittery Investors


Retail investors could be in for a shock when they open their quarter-end mutual fund reports next week - and find out how much money they've lost on corporate bonds in the last month.
The sell-off was sparked by Federal Reserve Chairman Ben Bernanke on May 22, when he began talking about ending the Fed's stimulus plan and immediately turned a red-hot market sour.
Corporate bonds, which till then had gained 0.72% for the year based on the Barclays investment-grade index, have now lost 3.74% in 2013 - a staggering 450bp U-turn in just four weeks.
Spread-based products - investments whose value is tied to the interest rates on US Treasuries - have been pummeled as yields have spiked since Bernanke's remarks.
And while that may partly be good news for large institutional investors who see opportunities to buy as prices have plunged, even they will be watching to see how retail buyers react when quarterly statements come - and the dire current state of their bond holdings kicks in.
"The level to which investment grade corporate bonds are interest rate sensitive will certainly be an eye-opener to many total return investors when they open up their quarterly statements on June 30," said Edward Marrinan, head of Royal Bank of Scotland's US research.
"That means there is a risk that we will see further pressure on valuations, as those investors reduce their exposure."


http://www.cnbc.com/id/100840469

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