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Show DAILY Sunday, April 30, 2006 HERALD WALL ST PTJOURNAL i) t WSJ.com/Sunday The Weekly Guide toManaging Your Money ©2006 DowJones € Company,Inc. All Rights Reserved. World’s Hottest Bonds Might Cool Off By Craic KarMin Emerging Wealth ta time whenrisinginterest A rates are rattling bond investors, mutual funds that buy bonds from developing nations have stellar performance records and are attracting lots of money. But beware: These funds could To be sure, analysts say the long-term prospects for these coun- ‘term bond funds. tries remain sunny. and not everyone is convinced the long emerg- $4,000 ing-market bond rally is over. Somesay the funds should be solid but not spectacular investments for years to come,reflecting their 3,000 end up being particular laggards in whatislookinglike a tough year for bond investing. Manytypes of bond funds have negative returns so far in 2006. 2,000 now-lowerrisk profile. That's becauseinterest rates have 1000 Yield Gap Has Narrowed One indication of that reduced 20. But some market watchers say prices of emerging-market bonds have been pushed up unreasonably high by a heavy influx of new For.more on bond investing, see Family Finances on the next page. money, and could suffer if investors cash out in search of other opportunities. As of last week, the yields on emerging-market bonds exceeded those of super-safe Treasury debt by the narrowest mar- gins ever. “Youcertainly have the ingredi- ents for a period of heightened volatility and maybe even a correc- 19% Matthew Ryan, the emerging-market-bond portfolio manager at MFS Investment Management in Boston. intermediate-term ‘97 J 98 ! 99-2000 ‘11 termediate-term funds are down an average 0.87% so far this year. From 1991 through 2005, emerging-market bonds boasted an annualized return of 13.5%, according to Merrill Lynch, making them the best-performing of all dollar-denominated bonds over that period. But it was a rocky ride that included several blowups, including an Asian currencycrisis and Russia’s debt default. Theerratic boom-and-bust days maynowbe over, as economies in Asia, Latin America and Eastern Europe have become stronger and more stable over the past few years. Still, some analysts say investors may see falling bond prices in the months ahead. Like other bonds, emergingmarket bonds tumble in. price when the yields demandedbyin- bond funds, Morningstar says. Thosein- week on bill to ease consumers’ prices have weakened recently as the yield on the benchmark 10-year Treasury note climbed est rates in the U.S. at least one more time, but the European Central Bank is expected to raise its rates by atleast a half percentage UU tae 20 Liberty. Street Larry Goodman, an emergingmarket currency analyst at Bank of America, says that while the rapidly improving emerging-market economies at first justified the bonds’ rally, the economic condi- . tions in emerging nations “have stabilized, or even become worse” since the middle of 2005. ing. Today, that figure is above 50% and expected to keeprising. The improvedcredit ratings reflect real changes in these economies, underpinning the long-term case for the bonds. Currencies that were oncelinked to the dollar now trade. more freely, giving their economies greaterflexibility, and governments havepaid off foreign He thinks many of the bonds’ gains since thenarea sign ofinvestors chasing high returns. debt. Money flows into emergingmarket bond funds have been ro- which means these countries have bust: Through mid-April, they to- taled $4.4 billion world-wide, according to EmergingPortfolio.com Foreign reserves for emergingmarket countries have also grown, more ammunition to support their currencies. H bondsissued in early 1976 and gov/sav/savstop.htm online.) You can check the current rate, , value and final maturity of your old bonds by using an online tool at i. Enter the “Individual/Personal” section and scroll to the bottom ofthe list. Click on “Price Your Savings Bonds” and then “Savings Bond Calculator.” There's also a downloadable “Sav- ings Bond Wizard” program. Lost or destroyed savings bonds can be, reissued. It's easiest if you have the bond's serial number, is- sue date,registration and the owner’s Social Security or taxpayer identification number. To avoid prob- lems,put your bondsin a secure place, and keepa recordofthis information separate from your bonds, If you think’a family member, such as a deceased parent, may have held bonds and neverre- deemed them,you can search at TreasuryDirect using that person's Social Security number. Email: forum.sunday03@ws).com By Diana Ransom | { you something.) . Once you get all three reports, carefully analyze them for errors or questionable information. Sometimes, for instance, young adults’ financial information will get mixed up with their parents’information on credit reports, says Mr. Watts of Fair Isaac. And sometimes there are DESKTOP just plain incorrect data. It's worth disputing anyinformation that seems erroneous or questionable. The mosteffective TiVo Sees Double: TiVo's first digital video recorderthat lets users record two showsat once will hit the shelves tomorrow. The 80-hour “dual-tuner” model will cost $99 and the 180-hour modelcosts that describes and disputes the ber, typically between 300 and $50 for the commonly used “FICO” score, that lenders use to measurethelikelihood a bor- fees. rowerwill repay a loan. Lenders rely on credit scores in deciding whether to grant a loan and the interest rate. LAST WEEK WA Mixed Week for Stocks: The Dow Jones Industrial Average rose a scant 0.2%last week, while the small-stock Russell 2000 index de More Data, More Users Generally speaking, FICO scores above 760 qualify you for clined 1%. the best loan terms, while scores below 600 can mean unappealing terms and higher interest @A Strong Economy: The U.S. economy grew at a 4.8% annual rates—or bar you from getting a rate in the first quarter, its fastest loan altogether. Nowadays some rate in nearly three years. Despite auto insurers use credit scores to set premiums, landlords use them to find reliable tenants, this and other signs of a surging economy, Federal Reserve Chairman Ben Bernanke indicatedlast and someemployers factor them into hiring decisions. And unfortunately, young adults need to be ever more careful with all sorts of financial obli- @ Securities ‘Scheme: CA's former chief executive, Sanjay Kumar, gations. It isn’t enough just to pleaded guilty to securities fraud avoid the classic error of a | | and obstruction chargesrelated to spotty history with that first using backdated contractsto falsify the software company’s earnings. He faces @ maximum of 90 years credit card. Lenders now have access to non-credit-based financial his- in prison, tory when you apply for a loan. @ Earnings Briefs: Exxon Mobil's earings climbed 7% to $8.4 billion ‘on surgingoil prices, but failed to profit fell 35% to $51 million, hurt by an accounting change. inga letter to the credit bureau they havea credit score—a num- $199after rebates and activation meet Wall Street forecasts...Boeing posted a 29% profit jump to $692 million on brisk demand for planes...Caterpillar scored a 45% rise to $840 million in profit, reflecting strong demand for construction and mining gear...Xerox's profit fell 4.8% to $200 million on lower sales and hi costs...Amazon’s way to do thisis usually by writ- The reason: These milestone financial transactions are when manypeoplefirst discover that a rate-boost pause in June. William F. Casey de Lice Pupstiesr, Set (212) 416-4025 the economy may be heading.” * until years later, when they apply for their first auto loan or mortgage or insurance policy. weekthat the Fed may be ready for ils sunday a wy 1800 Route 1 North Seutl frunswick, Nal 882 bonds in that J.P. Morgan index carried an investment-grade rat- ots of people do foolish 1 things when they're young. But financial foolishnesscan be particularly hard to put behind you. Slip-ups with money when you're a teen or twentysomething can have long-lasting financial consequences, especially whentheyinvolvelate paymentsor, worseyet, letters from collection agencies. Young Source: WS! Market Data Group Warner and Deutsche Bank Wednes- David Crook Eynvon Mark Tyner Awe Dove ton prices don't reflect the direction says Mr. Stracke. “But the bond tite for these bonds,the narrowed: adults often don’t feel the burn WEamings Continue: Look for quarterly earnings reports from Sysco tomorrow, Verizon Tuesday, Time Lawrence Rout Sesion Ea H Karett | pate News Kor spreadsreflect the fact that emerging-market countries have come a long way. In 1998, only 10% of interest-eaming years: Series E and Series HH bonds from early 1986. (See: www.publicdebt.treas. How Young Adults Mess Up Credit Ratings BIG ISN'T BETTER: While the Dow Jones Industrial Average hita fresh 20% expected to announceplans. possibly as soon as this week, to ac quire Massive, a two-year-old firm that places ads in videogames. Microsoft shares fell 11.4% Friday af. ter the software giant reported disappointing earningsthatreflected increased expenses onits Xbox 360 videogame system. ‘THE WALLSTREETJOURNAL and possibly turn to.a deficit next year. “The problem with Brazil is everyonelikesto look at how much the economyimproved last year,” points, with the J.P. Morgan Emerging Markets Bond Index terest for varying lengths of time depending on the series and date of issuance. Among the bonds that have just reached the endof their ee ‘@ Microsoft's Move: Microsoft is will report on manufactunng condi: mand that higher-risk bonds—not just those from emerging markets but also U.S. corporate bonds and high-yield “junk” bonds—deliver yields that exceed Treasury yields by wider marginsthanexist today. That would push emerging-market bond prices downeven further. in commodity prices wouldtrim export incomefor countries from Brazil to Russia to Indonesia. markets world-wide—the yields on emerging-market bonds exceeded those on Treasurys by 16.5 percentage points. . That spread is now under two Starting Out / By Kelly K. Spors representative of the world’s top oil tions in April yielding about 7% compared to a 10-year Treasury note at 5%. Besides investors’ strong appe- don’t reflect the risks. date gain still trails thatof the ‘small-stock Russell 2000 index. exporter, he may face tough criti cism about crude-oil prices, which recently surged above $75 a barrel and ended last week at $71.88. + institute for Supply Management that Russia’s debt default roiled Further, Brazil's trade surplus with other countries is expected to prices of emerging-market bonds ® Oil Man Visits: Saud) Arabian Oil Minister Ali Naimi is scheduled to attend U.S-Sauci Arabia energy talks in Washington this week. As a Saving vs. Spending: Tomorrow. brings news on whether Americans monthiy spending once again exceeded savings. Also tomorrow, the Foronething, fast-rising commodity prices have givena big lift to many of the emerging-market, economies, especially in Latin America. Any meaningful retreat narrowthis year from 2005’slevel lin recent years] andit’s likely to erhardt, a spokesman are essentially losing money.” Savings bonds issued by the U.S. Treasury Department earn in- Skittish “investors could de- crackfirst when sentiment in the bond market changes.” There are also other reasons that Mr. Stracke believes the THE WEEK for the Bureau of the Public Debt. And because ofinflation, “if bonds are no longer eaming interest, they point. Japan has also signaled that higher rates are coming for the first time in years. Riskier assets such as emerging-market debttend to get hit the hardest when global rates are rising because investors haveless incentive to buy these bonds when the rates offered by safer bonds such.as Treasurys have moved up. market that's benefited the. most nearly four years. Notonlyis the Federal Reserve expected to raise short-term inter- yet been redeemed, says OE ssthon Mer demand compared to Treasurys. In 1998—a year after Asia’s currency devaluations rocked emerging markets and the same year Source: Morningstar York. “It was the part of the bond Thirty-five million such savings bonds valued at $14 billion haven't tional interest that bond investors «0405 06 credit research firm based in New if some of your bonds are so old that they are no longer earning interest at all. six-year high last week,its year-to- pain at the gas pump. With many. Americans now paying more than $3 a gallon, the measure aims to spur production and would give tax payers a $100 rebate on this year's federal income taxes. day, Eastman Kodak and Tyco Thurs: Gay and Warner Music 3:oup Friday. «03 canary in the financial coal mine,” says Christian Stracke, an analyst’ for CreditSights, an economic and vestors generally rise. Most bond INVESTOR’S CALENDAR THIS WEEK Tackling GasolinePrice Pain: The Senate could vote as soon as this 02 ‘Canary in the Coal Mine’ “Emerging markets arelike the above 5% for the first time in Sizzling Stock-Like Returns Emerging-market bond funds have returned an average 13.94% a year over the past three years, comparedto just 2.54% for plain-va- nila | Tyson Smith tion, ! ings bondswill be announced tomorrow.It's a good time to check Michae! Meister government debt from countries sueh as Brazil and Russia are up an average 2.5% in 2006, according to researcher Morningstar_in Chi- risk profile: the margins of addi- bond funds 0 ew interest rates for U.S, sav- total of $5.7 billion. ttwasn’t a smooth ride, but aninvestor who put $1,000 in emerging-market bond market” bord fundsthat invest in | For 0% Return FundResearch. Thatputs them on pace to break last year’s record funds a decadeago did far better than someone buyingless risky intermediate- risen and bond prices, which move in the opposite direction, have sagged. Bucking the trend, “emerging- q Don’t Settle 30% for the amount owed, espe- young adult, it’s going to make your credit history. The more re- credita lot easier to qualify for,” says Craig Watts, a spokesman for Fair Isaac, based in Minneap- olis. “On the flip side, it means as lenders start using these expansion scores in mass volume that young adults will need to start minding their Ps and Qs a lot more.” You could be hurt, for instance, by the fact that you repeatedly paid the electric bill months late when you were college studentliving off-campus. LowScores are Costly A poorcredit score could really cost you. Someone with a ers may check an expansion it affects your score. Too many credit inquiries and loan applications by you, or too many accounts opened in a short time, also can hurt you temporarily. So what do you do if your credit already has been damaged by past mistakes? Often, you can improve your score in a matter of months. Here are some ways to doit. Pay bills on time—automatl cally. Since weighted months to ments on late payments are heavily, having six a year oftimely payyour debt can work port you to the credit bureaus a 6.58% fixed rate, or a $1,025 monthly payment, according to online lender E-Loan.Butif that same person's score was only 600, the interest rate would be 10.75% and the monthly payment would be $1,500. On a $15,000, five-year auto es cent a credit blemish, the more wonders. Most lenders won't re- loan, someone with a good score might pay $290 a month while someone with a 620 score would pay $325 monthly. Your score reflects credit information collected on you by the three major credit bureaus— Experian, Equifax, and Trans- tory with utilities and book and music clubs. i _ Especially for young adults ‘with thin credit histories, lend- limits; and 15% for the length of $160,000, 30-year mortgage with Fair Isaac, the pioneer of the data such as apartment rental history, checking-account Tecords and your payment his- cially as compared to your credit 720 FICO score could get a widely used FICO credit score, recently started offering an “expansion score.” The new score is similar to a traditional credit score, but it instead factors in | score to get a better read on financial reliability. “From the perspective of a until a payment is at least 30 days late. But one such late pay- iment can knock 100 points off your score. One strategy that may help:signing up for automaticbill pay- ing. That service is often free, and it makes sure the payment is automatically deducted from your ing account at the same time each month, so you questionable information. Send it certified mail. Include anyevidence oftheerror if you haveit. Unless the bureaus can verify that their information is correct, they usually removeit from your report. It's also a good idea to check your credit score at least once or twiceshortly before you actually need credit. You can buy your score for about $6 when you get your free credit reports online. Thereport usually also tells you what's dragging down your score. Be a savvy credit user. Having someloans andcredit lines actually helps boost your credit score, because it gives you enough of a credit file for lenders to see how you've man- aged debt in thepast. Butespecially with revolving debt like credit cards, try to keep balances low compared to your credit limits. You're better off having low balances on two or three lines of credit than one credit line maxed out. You generally want to keep your balances at 30% or less of your limit. If you have old, unused credit lines, such as store-based credit cards, you might be tempted to close them. This usually isn’t a good idea unless you have a large number of credit lines— say, ‘six or more. Even then, don’t have to worry aboutforget- you're usually better off closing Check credit reports annually. newer accounts because having older credit lines helps your credit score. ting. You can get access to your credit reports free at the Inter- net site once every 12 months. (Don’t mess up the Web address or you might end up on a similarly named site that’s trying to sell “Starting Out” column, write: kelly.spors@wsj.com |