INVESTING Bond market news in July was a downer

Bond investors are on the short end this year as stocks bounce back.
KNIGHT RIDDER NEWSPAPERS
The bond market lost more ground in July than in any month since December 1991, according to Lehman Bros.
But bad news in bonds requires some perspective.
"This was a blip," said Andrew Clark, a mutual-fund analyst at Lipper Inc. "I don't think people should necessarily be concerned unless they were entirely in government bonds."
There was nothing genteel about the blow-up in the U.S. Treasury market. The Wasatch-Hoisington U.S. Treasury fund, a specialist in government bonds, fell 12.15 percent in July, according to Morningstar Inc.
Investors who hold a broad mix of bonds are faring much better. The Vanguard Total Bond Market Index fund, designed to track bonds as broadly as possible, lost 3.34 percent in the same period, the Chicago mutual-fund ranking service said.
"People focus on the government bond market," said Kenneth Volpert, who manages the Vanguard fund. "It's not the bond market; it's a segment of the bond market."
The bond rout is a graphic lesson in the wisdom of spreading investments around, or diversifying them. High-yield bonds, or junk bonds, held up best in July, followed by mortgage-backed bonds and corporate bonds, Morningstar said.
The correction also makes a case for formulating an investment plan and sticking to it, although the argument is not as easy to grasp.
What's advised
Some financial planners say they are telling investors to stay the course. "Some clients are getting their July statements and asking what happened," said Tom Bird, a financial planner in King of Prussia, Pa.
Bird said he told his clients that bonds were doing their job. "This is no time to be changing investment allocations," he said.
Allocation is a mix of bonds vs. stocks that is appropriate for an investor's age and appetite for risk.
Financial planners tell older investors and cautious investors to emphasize bonds because the swings in the bond market typically are less dramatic than those in stock prices.
The conventional wisdom holds today despite headlines suggesting otherwise, Volpert said. Volpert's Vanguard fund is showing a gain of 0.43 percent in 2003 through July.
Meanwhile, the Wasatch fund was down 6.1 percent in the first seven months of 2003.
Investors should expect the bond market to underperform the stock market at regular intervals, said Al Marland, a financial planner in Radnor, Pa. "Try to look always at a 10-year time horizon" rather than short periods, he said.
Stocks and bonds typically move in opposite directions. Stocks do better in a growing economy, and bonds shine in the opposite circumstance.
Safety measure
Mixing stocks and bonds adds a measure of safety to an investment portfolio. Diversified investors may sacrifice some performance, but they find it easier to open quarterly account statements.
This year is no exception. The Standard & amp; Poor's 500 stock index was up 13.7 percent through July, and the Lehman Bros. Aggregate bond index barely broke even at 0.4 percent.
The relative performance marks a turnaround for stocks. During the bear market, the Lehman index gained an average 10.1 percent a year between 2000 and 2002, while the S & amp;P 500 lost an average 14.6 percent a year.
Watching the Treasury bond correction was like watching a train wreck in slow motion, said Sweeney, the Morningstar analyst.
Ten months ago, Morningstar and other research firms were saying that interest rates on Treasury securities had fallen too low. Even so, the yield on 10-year Treasury notes hit a 45-year low in June.
Investors who do not own any bond funds and want to pick some now should stick with corporate bond funds, Lipper and Morningstar say, but should expect a bumpy ride.
"You're going to have some weird stuff going on in the short run," Volpert said.
For his part, Lipper's Clark sees good news in the battered bond market. "It is almost always a sign that the economy is turning around."