Tags: Norris | risk | bond | investors

NYT’s Norris: Risk Abounds for Bond Investors

By Dan Weil   |   Monday, 17 Dec 2012 08:23 AM

Bond investors have had a jolly good roll over the past five years, but now danger is lurking, says New York Times columnist Floyd Norris.

The 10-year Treasury yield has dropped to 1.73 percent from 4.24 percent in December 2007.

The Federal Reserve announced last week that it doesn’t plan to raise interest rates until the unemployment rate drops to 6.5 percent. In November, the rate was 7.7 percent. While the Fed doesn’t expect that kind of progress until late 2015, it could easily happen sooner Norris says.

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

So at some point interest-rate risk becomes very real for bondholders.

Then there’s credit risk. Corporations of all different credit quality have been issuing bonds like there’s no tomorrow over the past few years. And investors have been more than happy to accommodate the issuers.

“Almost any kind of corporate activity is acceptable to the bond market,” Michael Shaoul, chief executive of Marketfield Asset Management, told Norris. “That is really a sign the bond market is becoming indiscriminate.”

Treasury yields have risen over the past two weeks amid fiscal-cliff concerns. And the Fed’s announcement Wednesday that it will increase its quantitative easing isn’t helping matters.

“The Fed’s message was one of higher tolerance for inflation, and they are purchasing less on the long end, which has been bearish for bonds,” Gary Pollack, head of fixed-income trading at Deutsche Bank’s Private Wealth Management unit, tells Bloomberg.

Editor's Note:
This Wasn’t an Accident — Experts Testify on Financial Meltdown

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Bond investors have had a jolly good roll over the past five years, but now danger is lurking, says New York Times columnist Floyd Norris.
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