Posted on 01 January, 2011 | 58 Comments
For months, we at Frontwater Capital, have been saying: stay away from government and investment grade bonds. When cash rich companies like, IBM, Microsoft, Pepsi, Walmart, and McDonalds can issue debt at yields near or below 1% for 3 years, you have to question the intelligence of the bond market. Finally, this December, it seems as if we got the correction that we have been looking for.
We are now starting to see the beginning of a massive exodus out of bonds and bond funds, and inflows back into the stock market. Bond mutual funds had the biggest client withdrawals in more than two years in December as a the flight from fixed-income investments accelerated.
U.S. bond funds in particular experienced withdrawals of $8.62 billion in the week ended Dec. 15, up from $1.66 billion the week before. The withdrawals were the largest since the week ended Oct. 15, 2008, when investors yanked $17.6 billion from bond funds.
And in spite of the Federal Reserve’s pledge to buy $600 billion in assets to revive the economy, we continue to see a net selloff in Treasuries as 10 year note yields have jumped to 3.35 percent, up from 2.49 percent.
So, is the bond bubble bursting. We certainly think so. Even at these new levels, yields look desperately low while continuing to carry a whole lot of risk as signs of an economic recovery and a stock market rally increase speculation that interest rates may rise.
August 22nd, 2014 at 10:40 am
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