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The Bull Case
23 May 2012 EDT -
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The long-running bull market for bonds should continue this year, albeit with different sectors eventually leading the way.

Treasury bonds continue to defy bubble predictions, and the Federal Reserve’s position that it will keep rates low through 2013 could extend the Treasury rally a tad longer, says Scott Kimball, a portfolio manager with Taplin, Canida & Habacht.

The Fed insists that inflation remains subdued and that it expects only modest economic growth , affirming an easy-money policy for the foreseeable future.

In addition to spurring a move into riskier assets, such a policy also acts as a form of insurance to protect against continued instability in Europe, analysts say.

But with 10-year nominal yields below 2 percent and real yields negative when adjusted for inflation, most market watchers say the desire for higher income will trump safety and lead bond investors into the sectors that offer a higher yield than Treasurys.

Combine a desire for yield with expectations for slow but steady economic growth and tame inflation and you have an environment that should benefit all but the priciest U.S. bonds.

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