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Best bond play for taper angst?

Althea Chang

Some investors expect Ben Bernanke to announce this week that the Federal Reserve will begin tapering its massive bond-buying program, but one analyst isn't so sure. He says the timing of the taper doesn't matter so much anyway.

"First of all it's our base-case expectation that the Fed begins reducing its bond purchases in November and really finishes them by about July 2014 or so," said Guy LeBas, fixed income strategist at Janney Montgomery. "And the key here is we know where our starting point is. Today the Fed is buying about $85 billion worth of bonds a month. We know where our ending point is. By mid-2014 they plan on buying zero dollars of bonds per month. So if you take that start and that end, it really doesn't matter all that much whether they start reducing ... purchases in September at a slow pace or purchases in November at a little bit of a faster pace," LeBas said.

Either way, tapering is already priced into the bond market and bond durations should be more of a concern for investors, LeBas said.

The duration of a bond, or the time until it reaches maturity, essentially dictates volatility since the market price of a bond changes with interest rates, and bonds with longer durations tend to be more sensitive to interest rate swings, LeBas told "Big Data Download."

"Because of the volatility that's entered into the markets recently, it's our recommendation that investors look to shorten up and take a look at some of those sort of safe-haven shorter-term areas in the bond markets," said the strategist, who says 3-year corporate bonds are an investor's best bond bet.

By Althea Chang

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