Mispriced Bonds

Since June, 2010, I’ve been selling off large chunks of my bond portfolio. And today, my bond allocation is lower than it’s been in years.

With a U.S. federal 10 year treasury note paying just 2.38%, bonds are very unattractive. And my Canadian bond index isn’t paying a heck of a lot more.

The earnings yield on the S&P 500 is double the bond yield—so I don’t think it makes a lot of sense to put money into bonds right now.

Selling off more than $120,000 in bonds, (in June) I bought decent sized positions in:

• Coca Cola at $50 per share
• Johnson & Johnson at $57 per share
• XDV.TO (a Canadian high dividend yielding index)  at $18.50 per share
• TJX Companies at $40 per share
• Microsoft at roughly $24 per share.

Currently, my bond allocation is about 30% of my total portfolio.

Considering that I don’t like to speculate, and I don’t have a pension, I’ll never be an “all or nothing” kind of investor who moves fully out of the stock market or out of the bond market. I’ll leave that for the Vegas types. For me, having a 30% bond allocation is like parachuting—likely safe, but still frightening as hell.

How about you? What are your thoughts on bonds? And have you trimmed your bonds based on the relatively low yields?