| Bonds Online |
 |
|
| 5/10/2013Market Performance |
| Municipal Bonds |
|---|
|
S&P National Bond Index
|
3.00% |
|
|
S&P California Bond Index
|
2.96% |
|
|
S&P New York Bond Index
|
3.13% |
|
|
S&P National 0-5 Year Municipal Bond Index
|
0.70% |
|
|
| S&P/BGCantor US Treasury Bond |
400.09 |
|
| More |
|
| Income Equities: |
|---|
| Preferred Stocks |
|---|
|
S&P U.S. Preferred Stock Index
|
848.03 |
|
|
S&P U.S. Preferred Stock Index (CAD)
|
636.26 |
|
|
S&P U.S. Preferred Stock Index (TR)
|
1,701.05 |
|
|
S&P U.S. Preferred Stock Index (TR) (CAD)
|
1,276.26 |
|
|
| REITs |
|---|
|
S&P REIT Index
|
174.07 |
|
|
S&P REIT Index (TR)
|
425.30 |
|
|
| MLPs |
|---|
|
S&P MLP Index
|
2,469.58 |
|
|
S&P MLP Index (TR)
|
5,428.50 |
|
|
See Data
|
|
|
|
 |
|
|
|
|
|
|
Rising rates can batter bonds, but stocks may be little comfort |
Chicago Tribune - March 23, 2010 - by Gail MarksJarvis
Should you duck to avoid getting smacked by the bond market? And if you do, will your stocks get roughed up too?
As investors start to anticipate rising interest rates, analysts are concerned about both stocks and bonds.
Although the Federal Reserve has said it plans to keep rates at rock-bottom levels for an "extended period," many strategists assume policymakers will start to wean the economy from the low rates in about six months, and they predict volatility in both stocks and bonds as trepidation builds.
Rising interest rates are especially hard on bond investors. If they are holding bonds with low rates, they can lose money because new, higher rates available in the marketplace are more attractive to investors than those on bonds already in their portfolios.
Investors with old bonds, including bond mutual funds, may not be able to sell the low-interest bonds in a rising rate environment unless they are willing to accept a lower price than they paid. And because 10-year U.S. Treasury bonds are yielding just 3.68 percent, and municipal bonds are also paying little interest, rising rates could be harsh on investors lulled by bond funds' strong returns the last couple of years.
Neuberger Berman fixed-income chief investment officer Brad Tank said investors in bond funds "could easily have a few quarters of negative returns."
Morgan Stanley strategist Jim Caron said, "We expect yields to rise sharply." The sharper the increase, the greater the potential for damage to investors holding low-interest bonds such as Treasurys and municipal bonds.
In anticipation, bond investors are feeling cautious. As Morgan Stanley strategist Rizwan Hussain has met with clients lately, he said, they worry about "a wholesale rotation out of fixed income altogether and into equities or alternatives."
Because investors can choose between stocks or bonds, the concern is that bond values could be injured if investors shy away from them in anticipation of potential losses. But in the long run, high interest rates can play havoc with stocks, too, as companies face stiffer interest rate charges on money they borrow for operations. The higher interest charges erode company profits.
As the first quarter ends, and people ponder potential threats to stocks and bonds, "Investors are begrudgingly accepting that volatility in asset prices is likely to be higher," Hussain said.
Recently, however, the stock market has been on a gentle rise, with the Dow industrials up 16 of the last 20 days. The Dow gained more than 100 points Tuesday, and hit a 17-month high. The benchmark Standard & Poor's 500 index is up 5.3 percent in 2010.
As the economy shows increasing strength and the likelihood for higher interest rates increases, Caron said he believes investors will change course after flooding bond funds with a record amount of money during the last couple of years and start looking to stocks.
But factors leading to high interest rates are still in flux. Although the Fed is expected to raise rates eventually, some economists think that's unlikely until unemployment eases somewhat. And inflation, a dangerous driver of rising interest rates, does not seem evident.
Merrill Lynch strategist David Bianco said that despite the anticipation of higher rates, "the bond market is sanguine about benign inflation."
That is evident in 10-year Treasury Inflation-Protected Securities yielding about 1.5 percent, even though their principal adjusts higher when inflation is anticipated.
Although commodity prices might rise, Bianco said he does not expect inflation or the surging interest rates that accompany it.
"Highly elevated and persistent inflation requires a wage-price spiral to sustain itself," and it's inconceivable that wages would climb while unemployment stays high through 2011, he said.
That still doesn't mean bond investors are without a worry. Bianco notes that concerns about government deficits and eventual inflation can cause expectations for inflation to mount. And that alone can push bond interest rates higher.
Tank's advice to investors: Stay with short-term bond funds, because bonds that mature quickly are less likely to lose money as rates rise. High-yield corporate bonds also can be less susceptible, although they will be at risk if investors expect rising rates to weaken the economy. Solid dividend-paying stocks also have appeal, he said.
gmarksjarvis@tribune.com
|
|
|
|
|
|
| Partner Market Place |
|
|
|
| Stuff to look at |
Yield and Income Newsletter: A must have for income investors. subscribe NOW
S&P Commentary and Newsletters: S&P
|
|
| BondsOnline Advisor |
Income Security Recommendation January 2013 Issue.
Keep up with monthly, in-depth coverage of fixed income market strategies, commentary, and insights as seen by our sources. Sign up for the free BondsOnline Advisor now!
Unsubscribe here [+] |
|
|
|
|
