Corporate & Securities Law

If gyrating stock mutual funds haven't been enough to make investors queasy, many bond funds have swooned, too.  A fifth of all investment grade U.S. taxable bond funds tracked by Morningstar are in the red.  Bonds are supposed to be the pillars of stability during times of tumult in the market.  And indeed, the broad Lehman Brothers U.S. Aggregate bond index - which tracks taxable bonds, including Treasury notes, corporates and some mortgage securities - is up about 2.3% since the start of this year through April 4. 

A few bond funds that placed big bets on mortgage securities have posted shockingly big drops.  The Regions Morgan Keegan Select Intermediate Bond fund is down 44% since the start of the year and 72% over the past year.  State Street Global Advisors Yield Plus and Schwab YieldPlus have fallen 18% and 23%, respectively, since the start of the year.  And even the relatively successful funds that invest in inflation-protected Treasury securities - which are up as much as 6% so far this year - face new risks.  If interest rates rise, the price of Treasury bonds will tumble - likely quite sharply in the short-term. 

Charles Schwab's largest bond fund has lost more than 80% of its assets over the past 10 months as investors have fled the mortgage-backed securities in which it invested heavily.  As of February 29, more than half of its assets were in mortgage-backed securities.

Source:  The Wall Street Journal and InvestmentNews