Thursday, November 4, 2010

Money Managers: Investor Fears Fuel Bond Bubble

Fixed-income investments, a safe haven for investors since the financial crisis, could slam already battered buyers after a record year of gains, wealth management executives told Reuters.

Investors flooded into bonds and other fixed-income securities in the wake of the 2008 financial crisis, seeking a safe haven after the S&P 500 Index lost half its value between its peak October 2007 and the depths of March 2009.

But this has created its own bubble, executives said at the Reuters Wealth Management Summit.

"What's interesting is how overpriced some of the risk-minimizing assets have gotten," said Gordon Fowler, chief executive and chief investment officer for Glenmede, a Philadelphia-based wealth manager.

In January 2008, a 10-year Treasury note yielded 3.97 percent, while now it yields 2.59 percent, signaling that investors are willing to accept much lower returns on these instruments.

And since November 2008, junk bonds have risen more than 75 percent as measured by the Bank of America Merrill Lynch High Yield bond index, which accounts for both price changes and interest earned. (more)

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