"Safe" Bond Funds Get the Blues
Many bond funds, which are supposed to be the pillars of stability during times of market upheaval, are suffering serious subprime mortgage investment losses. The Lehman Brothers U.S. Aggregate bond index, which tracks taxable bonds, Treasury notes, corporates, and some mortgage securities, is up 2.3% from January 1 through April 4 of this year. Yet, as reported by Shefali Anand of The Wall Street Journal on April 8, 2008, 20 percent of all investment-grade U.S. taxable bond funds are in the red for that same period.
The Regions Morgan Keegan Select Intermediate Bond fund is down 44% since the start of the year and 72% over the past year. Since the start of the year, State Street Global Advisors Yield Plus is down 18% and Schwab YieldPlus has fallen 23%.
Many bond funds have been dragged down by the massive sell off of mortgage securities because of the subprime crisis. Among the casualties are Metropolitan Strategic Fund (down 8% this quarter and 12% for one year), UBS Absolute Return Bond (down 8.5% year to date and nearly 15% over the past year), and Principal Investors Ultra Short Bond Fund (down nearly 7% this quarter and nearly 10% over the past year). Metropolitan West had more than half of its investments in mortgage and other asset-backed securities as of December 31, 2007.
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