Broward County

Bonds moving into the spotlight; will they fall?

There is little to find of daily interest to long-term investors in the bond market. It’s huge (much bigger than the stock market). It’s complicated (yields, maturity, credit risk, etc.). And the bond market is known, just like the stock market, for short-term emotional tantrums. But the bond market is getting more attention lately and deservedly so.

Bloomberg estimates in the past two weeks, investors in U.S. government bonds have lost almost $200 million. While that’s real money, it’s not a headline-grabbing amount. For the S&P 500 to lose the same amount of money, the index would have to fall less than a half percent.

However, the potential of investment losses is big enormous. Since the stock market hit bottom in March 2009, $1 trillion has poured into bond mutual funds market while only $82 billion has been newly invested in stock funds, according to data from the Investment Company Institute.

The bond market sell-off has been relatively quiet with no singular trigger. That’s why it’s worth watching the bond market in the week ahead.

Bond investors know every month that goes by without the Federal Reserve raising its target interest rate is another month closer to that happening. Warren Buffett told CNBC if he had an easy way to do it, he would short long-term U.S. government bonds. (Going short is a strategy that profits if the price goes down and interest rates go up.) European government bonds have dropped from record prices.

Last week the interest on a 10-year U.S. government bond jumped to its high of the year. As bond prices drop, interest rates rise and losses pile up. Meantime, borrowing costs increase, bringing more daily attention to the bond market.

Financial journalist Tom Hudson hosts The Sunshine Economy on WLRN-FM in Miami. Follow him on Twitter @HudsonsView.

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