Tags: Treasurys | interest | rates | Fed

MarketWatch: Bond Market Rally Growing Stale

By    |   Wednesday, 13 March 2013 08:15 AM

The multi-year rally in the U.S. bond market, still percolating along despite being declared long in the tooth by many observers, is showing fresh signs of fatigue highlighted by the latest strong jobs report, according to MarketWatch.

The U.S. unemployment rate declined from 7.9 percent to 7.7 percent in February,. The jobs report sparked speculation the Federal Reserve may tighten monetary policy, which could force bond prices down and yields higher.

“The burning question for investors is how long will the Fed remain present,” Andrew Wilkinson, chief economic strategist at Miller Tabak & Co., told MarketWatch

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“Signs of accelerating jobs growth will create suspicion among investors that the Fed is closer to the exit.”

MarketWatch stated that the selloff Friday in the 10-year Treasury note was a signal that “it may be time to position for an end to falling yields and rosy returns.”

But bond market doomsayers have been consistently wrong in recent years, as interest rates fell to fresh lows in 2012.

This time, however, it may be different as illustrated by trends in both government and corporate debt, MarketWatch suggested.

Bank of America Merrill Lynch’s U.S. Treasury Master Index, which tracks U.S. sovereign debt, returned only 2.16 percent in 2012, compared with 9.79 percent in 2011, the financial news site noted. And the bank’s High Yield Master II Index, which tracks junk bonds, has returned only 2.25 percent so far in 2013, compared with 4.68 percent in the same period in 2012.

Meanwhile, investment flows into equity funds were positive for eight week ending Feb. 27 — the longest streak in almost three years, according to Investment Company Institute data cited by MarketWatch.

According to MarketWatch, “The question for many bond investors and analysts is not whether the rally is over, but how steep and swift the retreat will be.”

But the financial news publisher noted some fixed-income analysts believe the Fed could continue to keep a lid on bonds via the Fed’s monthly purchase of $85 billion in mortgage and Treasury debt.

Sy Harding, president of StreetSmartReport.com and editor of the Street Smart Post, offered a cautionary note about depending on the Fed to keep the bond market levitating.

“Markets don’t wait for governments to act, especially on interest rate changes. Already we’ve seen interest rates, mortgage rates and yields on bonds beginning to rise,” He wrote in a column for Forbes.

“In fact bond yields have risen enough that 20-year bonds have seen their value drop 12 percent since last August, in a fairly serious correction.”

Bill Gross, co-founder of fund giant Pimco, the world’s largest bond shop, told Investment news last week he expects the return on bonds to drop to the 2 percent to 3 percent range in future years — sharply lower than their 8% historical average.

Noted investor Jim Rogers told Bloomberg Radio last month, “I’m short long-term government bonds. I plan to short more. That bull market, that’s a bubble.”

Editor's Note: The IRS’ Worst Nightmare — How to Pay Zero Taxes

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The multi-year rally in the U.S. bond market, still percolating along despite being declared long in the tooth by many observers, is showing fresh signs of fatigue highlighted by the latest strong jobs report, according to MarketWatch.
Treasurys,interest,rates,Fed
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2013-15-13
Wednesday, 13 March 2013 08:15 AM
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