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Bond Funds Contain Hidden Junk

Since the end of April, when the stock market began to fall, investors have withdrawn about $75 billion from U.S. equity funds. At the same time, they’ve put about $42 billion into bond funds.  Why? Because they perceive them to be safer than the stock market.

But beware. Some of these bond funds contain huge investments in junk bonds that, in turn, can blow up under certain circumstances. Moreover, all of these funds will drop once interest rates rise. It may take a few years, but make no mistake – they eventually will drop. And as we’ve witnessed in the past, the junk will rise to the top.

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