Tags: bond | market | sell | Treasurys

NYT: Bond Investors Are Running for the Exits

By    |   Wednesday, 26 June 2013 07:54 AM

Investors fleeing the U.S. bond market are sparking a rout, according to The New York Times.

The sell-off has been predicted for years, given the long bond bull market that some experts believe has lasted as long as 30 years.

The exit, which The Times called a "stampede," has been most evident among retail investors, who pulled a record $48 billion worth of shares in bond mutual funds so far in June, according to data from TrimTabs. And hedge funds and other institutional investors have apparently been moving in the same direction.

Editor's Note:
Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

"The feeling you are getting out there is that people are selling first and asking questions later," said Hans Humes, CEO of hedge fund Greylock Capital.

Humes and others told The Times the recent bond volatility is prompted more by fear than by fundamental bond values.

"This could lead to crises for some big investors who took speculative bets, but it makes many analysts skeptical that the panic will lead to any broader instability in the financial system," The Times stated.

"The fundamental story is not so bad — you are not talking about the system teetering on the edge of anything," Humes noted.

For investors who bought bonds with borrowed money — or leverage — the current bond rout can magnify losses when they are forced to unwind their trades.

"The fact that we're seeing these violent moves is a reflection that there was leverage there," George Goncalves, a fixed-income strategist at Nomura, told The Times. "This is definitely a hissy fit. Some people are being forced to sell."

According to Bloomberg, U.S. Treasurys are now providing less than half the yield of stocks, giving investors little incentive to stay in bonds.

While 10-year Treasurys yield 2.61 percent, the aggregate earnings yield of S&P 500 stocks was 6.4 percent in May. The gap is more than double the average of 1.9 percent since 2000, Bloomberg reported.

"The lost decade for bonds has begun," Howard Ward, CIO at Gamco Investors, told Bloomberg. "Stocks are likely going to be the asset class of choice over the course of the next 10 years."

The plummet in bonds abated in early trading Tuesday, Reuters reported, but the fallout from the Federal Reserve's eventual end to bond buying still weighed on the minds of investors.

Analysts told Reuters the lull in the selling was likely to be only temporary, as fears over the Fed's eventual pullback from its ultra-loose monetary policy was sure to fuel further shifts by investors.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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Investors fleeing the U.S. bond market are sparking a rout, according to The New York Times.
Wednesday, 26 June 2013 07:54 AM
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