Tags: Krawcheck | bond | funds | risk

Krawcheck: Bond Funds Are at Risk as Rates Rise

By    |   Sunday, 02 June 2013 12:07 PM

The recent surge in interest rates, with the 10-year Treasury yield reaching a 13-month high, puts bond-fund investors at risk, says Sallie Krawcheck, former president of Bank of America’s global wealth & investment management division.

"Things feel pretty good" right now, because the economy looks neither too sluggish nor
overheated, she told Yahoo.

So what's the worry?

"As bond yields rise, as the economy does better, do individuals recognize the risk of capital losses in their bond funds?" said Krawcheck, who recently bought 85 Broads, a global network of women. The group, which grew out of an organization of women who worked Goldman Sachs at 85 Broad St. in New York City, claims 30,000 members.

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The 10-year Treasury yield stood at 2.135 percent late Friday, after hitting the 13-month peak of 2.23 percent Wednesday.

“I worry that people think bonds are safe – I get back 100 cents on the dollar at maturity if
something doesn’t happen in terms of credit,” Krawcheck said. “But there’s real interest-rate risk.”

She's also concerned about money-market funds.

"The fact that we've come out of a downturn without money funds being substantially reregulated, when it's a $2.6 trillion industry a lot of individual investors believe is risk free, . . . it’s not,” Krawcheck said.

As for interest rates, the future picture is murky, as the Federal Reserve has put out mixed signals about when it will begin to taper its aggressive quantitative easing.

"The Fed has been clumsy because it is struggling to come to terms with the uncharted territory of these markets," Adrian Miller, a fixed-income strategist at GMP Securities, told The Wall Street Journal.

"And there is no unified opinion among its members as to the appropriate exit strategy."

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The recent surge in interest rates, with the 10-year Treasury yield reaching a 13-month high, puts bond-fund investors at risk, says Sallie Krawcheck, former president of Bank of America's global wealth & investment management division.
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2013-07-02
Sunday, 02 June 2013 12:07 PM
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