Bond investors who are trying to figure out where to take their talents — or investment choices — would do well to study NBA star LeBron James, according to Michael Lewitt at The Credit Strategist. To much fanfare, James is returning to his home state of Ohio to play for theCleveland Cavaliers next season. But it’s not his choice of teams that makes him such a good role model for bond investors — it’s the contract he signed, according to Lewitt. James agreed to a short-term two-year deal, which is expected to help net him more money when he renegotiates down the line, given a new NBA television deal that’s in the works. Corporate bond investors are staring down paltry income from bonds as buyers pile into the market amid low interest rates. The 10-year Treasury note 10_YEAR traded at a yield of 2.49% on Monday. But, like LeBron, they see a bigger payout ahead, given the possibility that rates could rise. Lewitt writes in a research note: “Bond investors face three types of risks: interest rate, credit and systemic risk. Today, all three risks are arguably at their optimal or lowest levels in years and are highly likely to increase over the immediate future… “The most likely course of events over the next two to three years and then the next three to five years is higher market volatility as a result of rising rates, which will create the opportunity for investors who have planned properly not only to avoid large losses (both realized and unrealized or mark-to-market) on their bond portfolios, but to be positioned to take advantage of the opportunities that market dislocations will create.” So what’s a bond buyer to do? Like LeBron’s contract choice, they should go short-term. Writes Lewitt: “Investors would be wiser to follow Lebron’s example and keep the duration of their commitments as short as possible in the current low yield environment while waiting for bond yields to rise. Whatever returns they sacrifice in the short term will be more than recaptured over the long term." Source: http://www.marketwatch.com/