London software testing news UK


It’s stress testing, but not as we know it

Posted in General by testing in London on August 20, 2007

From Startribue

There’s a difference between reacting to short-term market wiggles and overreacting to them.

So while experts routinely tell fund investors to ignore day-to-day deviations, what happens over a month or two can be telling, particularly in bond funds. And based on what has been going on in the mortgage and credit markets, this is a time for many bond fund investors to react and recheck their position.

That’s not a call to sell bond funds, but rather to examine performance more closely, because the wild conditions that the market has lived through since the end of June have created the perfect crucible for stress-testing a bond fund’s portfolio and your tolerance for what the fund holds.

If you set aside the headlines tormenting fixed-income land, you can sum up the current situation this way: It’s a great time to be a tortoise, the bond markets were so favorable that bond fund managers had an easy time putting up decent results. The hares — the funds that stretch for extra yield — were rewarded for taking high risks.

While that appeared to be changing in the early part of 2007, there’s no doubt it changed by June 30. That’s when the market effectively repriced risk, and a four-year trend of tightening credit spreads effectively reversed itself over the course of a month. As a result, Treasury yields are down dramatically, and when yields fall, bond prices rise.

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