| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Bonds avoiding bubble characteristics for now |
JSOnline - Jan. 17, 2010 - by Tom Saler
$300 billion invested in fixed-income mutual funds last year
Keep looking up. For the next bubble, that is.
After a decade of serial bubble blowing by global central banks, jittery investors are on high alert for signs of excess in asset markets worldwide. And barring a Houdini-like escape from the circuitous trap of free money, it seems likely that there will be another bubble floating by in the not-too-distant future.
Emerging markets that tie their currencies to the U.S. dollar are prime candidates since that means importing America's loose monetary policy at a time when their own economies may be booming.
Commodities could tumble if the dollar rebounds and Chinese authorities decide to revalue their currency and take aggressive pre-emptive measures to prevent economic overheating.
There also are concerns that the U.S. bond market has grown bubbly as investors chase income in a low-yield world.
The average money-market fund sports a yield of 0.03%. At that rate, $1 invested today would grow to $2 by September 4320.
Hope you keep that New Year's resolution about diet and exercise.
Still skeptical of stocks, investors have embraced bond funds, though not without some trepidation.
As the global economy was melting down, people were more concerned with the return of their money than the return on it. That changed last spring, when financial Armageddon was avoided and eye-popping values were exposed in non-government sectors of the fixed-income market.
At the peak of the panic, investment-grade and junk corporate bonds yielded 10% and 20%, respectively, at a time when inflation was in negative territory.
As buying opportunities go, that one ranks with the early 1980s, when Treasury and tax-exempt bonds yielded close to 15%.
But short-term interest rates also were in double-digits then, so investors were slower to jump on the bond bandwagon.
Last year, Americans poured more than $300 billion into fixed-income mutual funds, even as they yanked a few billion from equity funds and a half-trillion from money-market accounts.
With all that green chasing corporate debt, yields in the group came tumbling down. On a total return basis, investment-grade bonds returned about 15% in 2009 while some speculative credits gained roughly 50%.
So is it time to take some chips off the fixed-income table?
Certainly, the easy money has been made and risks are rising across the board. But it's probably premature to say that most bonds are in a bubble.
The domestic fixed-income market is not a homogenous asset class. Treasury, agency, corporate and municipal debt often perform differently at various points of the business cycle. Even within those sectors there can be significant variations depending upon economic conditions.
Assuming the slow-to-moderate growth environment that economists expect, corporate bonds do not appear overvalued. But neither are they cheap.
The yield differential between Baa corporates and similar-maturity Treasuries is 2.5 percentage points, about a quarter-point above the historical average. Some high-yield bonds provide an extra 5 percentage points of income. That's also above the long-term average, though not especially generous given the unstable economy and rising default rates.
Still, combined with favorable supply-demand characteristics, the overall corporate sector could provide at least mid-single digit returns this year.
Of course, all bets are off if the Fed does the unexpected and raises interest rates aggressively. In that environment, most bond prices would fall as cash yields rose and corporate finances grew more dicey.
The outlook for government bonds is problematic under most scenarios. The Treasury sector clearly was in bubble-land when yields bottomed at around 2% last spring. Since then yields have risen sharply but are still low on an inflation-adjusted basis.
There are hints that inflationary pressures are building, even as the Fed prepares to end its program of buying government debt with newly minted money. In the absence of a truly feeble economic recovery or double-dip recession, it's hard to imagine making much money in Treasuries given Uncle Sam's voracious funding needs, looming rate increases and decent competition from the corporate and tax-free sectors.
Add it all up and the outlook for U.S. bonds is fuzzy at best. But thankfully, not too bubbly.
Tom Saler is an author and freelance financial journalist in Madison. His latest book, "Serving Genius: Carlo Maria Giulini," will be published shortly by the University of Illinois Press. He can be reached by e-mail at tomsaler@aol.com.
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Income Security Recommendation January 2013 Issue.
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