Benzinga Daily Bond Market Briefing: Bond Fund Bubble
January 22, 2010 9:31 AM
U.S. equity funds lost $35 billion in 2009, versus $421 billion going into bond funds. There's a lot of unsophisticated money in bonds now that could flee at the first sign of trouble.
In 2009 investors were warned about bubbles: a bubble in Treasuries, a gold bubble and, finally, warnings of a rapidly expanding bubble in stocks, says Forbes
Trim Tabs Research tells us that a net $35 billion was pulled from U.S. equity funds in 2009, whereas $421 billion went into bond funds. It's simply astonishing. There is a lot of unsophisticated money in bonds now, and I'm not sure investors understand how miserable things can get when the low interest rate party ends.
Bond funds across all sectors are at risk. Long-term Treasury funds like Vanguard (MUTF:VUSTX) and Fidelity Spartan (MUTF:FLBAX) were down 12% in 2009 as long-term Treasury bond rates ticked up a percentage point. The precipitous fall is just the beginning. High-yield funds like T. Rowe Price's High Yield Fund (MUTF:PRHYX), up 49% last year, and Fidelity Capital & Income (MUTF:FAGIX), up 72%, won't continue breaking performance records.
Junk bond funds have a higher correlation to equity returns than to investment-grade corporates. Unless you expect another year of mammoth inflows into bonds or soaring stock market returns, you can't expect a repeat performance. You can't even be sure you'll end 2010 in positive territory.
How are US bonds faring this morning? U.S. government debt prices slipped on Friday following a rally on Thursday, in which investors fled stocks for the safety of bonds on news that the Obama administration was planning new curbs on big banks.
The Treasury bond market was retreating slightly from the previous day's levels even though stock futures were drifting lower, signaling a lower market open.
With no significant economic data in store for the day, stock market movements, along with preparations for a new supply of debt next week, looked to be the strongest influences on the Treasury market. Source
Greece said Friday that it plans to syndicate a five-year benchmark bond next week to address renewed market jitters over its ability to finance its giant budget deficit, even as yields on Greek debt hit a new high.
The bond, long awaited by market participants and seen as a key test of Greece's ability to attract investors, will raise between €3 billion and €5 billion, the head of the country's debt agency said.
"It has been decided that we should proceed with the syndication of a benchmark five-year issue in the immediate future," Spyros Papanikolaou, head of the Greek Public Debt Management Agency, said in an interview. Mr. Papanikolaou also denied media reports that Greece is planning a private placement as soon as Friday. Source
