playbook:

I am puzzled by the performance of ABNDX.  It looks to me like the NAV has declined much more than I would have predicted based on past performance.  I wonder if it has anything to do with mortgage-backed securities or high yield bonds. 

I think it may have something to do with the perceived toxicity of mortgage-backed securities but probably has more to do with stagflation expectations.  The most recent past periods of increasing interest rates weren't like the current economic situation.  We haven't seen stagflation since the 70's and early 80's so you would have to go back that far to know how the fund did in a similar situation, although we don't have wage inflation now and maybe won't.

I wonder what the explanation is for the drop in NAV of ABNDX in Oct. 2002?  I think that was the month that Congress authorized invading Iraq, so maybe that had something to do with it.

playbook:

Speaking of mortgage-backed securities, there was an interesting artice yesterday from a Blackrock senior exec who said their bond funds have purchased as much non-agency mortgage-backed stuff that they could afford to buy. He thought it was an unprecedented opportunity because the securities had been discounted well below their fair value.  I talked with a senior rep from American earlier this month and he said American had made major purchases in ABNDX fund as well that he thought would pay off handsomely.  He did not elaborate on what they had purchased.

I am sure the housing market will eventually bounce back and the value of these bonds will, too.  I don't know about where you live but where I live, the overwhelming majority of people are not in foreclosure.  They are paying their mortgages fine and not in danger of defaulting. So maybe you are getting ABNDX at a bargain now.  I feel that the interest rate sensitivity will play a larger role on NAV in the short term.

The problem with the mortgage backed securities as I see it is that they bundled subprime and alt-a loans with higher quality loans and gave the bundle a higher rating than it deserved.  Then securitized the bundles and no one did the due diligence to know what they were buying.  Hopefully, ABNDX does know what they bought and they aren't going by the ratings that were assigned to the bundles.