Tags: experts | bonds | tumble | rally

Experts: Bonds Ready for a Tumble

By Dan Weil   |   Thursday, 03 Jan 2013 08:30 AM

The bond market has enjoyed a 32-year rally, with gains particularly marked over the past five years. But many experts think the party is over.

Interest rates already are close to zero, so the only direction for them go is up. An accommodative Federal Reserve and stronger economic recovery also could lift bond yields.

The fiscal cliff agreement that Congress approved sent the bond market reeling Wednesday, as it boosted economic sentiment. The 10-year Treasury yield jumped 8 basis points to 1.84 percent, briefly touching a three-month high of 1.86 percent.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

“People are jumping out of bonds,” Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets, tells Bloomberg. “Something was done, and we avoided [spending] cuts and huge tax increases.”

Many experts believe the tide has now turned for bonds. “Mathematically, it’s next to impossible to get the kind of returns on bonds you’ve seen over the last few years,” Kate Moore, chief global equity strategist at Bank of America, tells The New York Times.

Individual investors are at risk, given their heavy fixed-income commitments of recent years. Bonds account for 26 percent of households’ mutual-fund investments, soaring from 14 percent in just five years, according to Morningstar.

“You don’t want to be the last one out the door when the trends turn,” Rebecca Patterson, chief investment strategist at Bessemer Trust, tells The Times.

“All good things come to an end and we want to make sure we’re in front of it.”

Editor's Note:
I Wish I Were Wrong — Economist Laments Being Right. See Interview.

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