Tags: Light | Treasury | bonds | yield

WSJ's Light: Don't Abandon Bonds

By    |   Monday, 09 December 2013 08:16 AM

The 10-year Treasury yield hit a 12-week high of 2.93 percent last week, and many market commentators predict that rates will keep rising.

Strong economic data last week convinced investors that the Federal Reserve will decide to begin tapering its quantitative easing by March.

But The Wall Street Journal's Joe Light cautions against giving up on bonds.

Editor’s Note:
See Sean Hyman Explain His Biblical Money Code for Investing


"If history is any guide, the disease of rising interest rates will only have a mild impact on bond returns," Light writes. "And seeking immunity from any losses by buying riskier assets could lead to trouble, analysts say."

For example, despite the fact that the 10-year Treasury yield has soared from 1.66 percent since May 2, bonds aren't poised for major losses this year, he says.

The iShares Core Total U.S. Bond Market exchange-traded fund (ETF) is on a pace to give up just 2 percent for the period. Even if rates rise to 3.5 percent next year, the ETF would lose only 3.2 percent. However, investors would have an annual yield of 2.2 percent to offset the loss, explains David Ader, head of government bond strategy for CRT Capital Group in Stamford, Conn.

And not everyone thinks Fed tapering would push bond yields much higher.

Chris Philips, a senior analyst at Vanguard Group, has seen estimates of 2.8 to 3.2 percent for the "natural" 10-year Treasury yield — that is, the yield without any Fed interference.

Star bond fund manager Jeff Gundlach, CEO of DoubleLine Capital, also cautions against casting bonds aside. In July 2012, he correctly predicted that the 10-year Treasury yield was bottoming around 1.4 percent. But now he's having second thoughts.

"We might have a panic into Treasurys," he tells Barron's.

"I'm not saying it's the base case, but something shaky, maybe a recession or a problem internationally, could trigger that."

Editor’s Note: See Sean Hyman Explain His Biblical Money Code for Investing

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The 10-year Treasury yield hit a 12-week high of 2.93 percent last week, and many market commentators predict that rates will keep rising.
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2013-16-09
Monday, 09 December 2013 08:16 AM
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