Looking at the chart above, it is obvious that the shares have passed bonds in 2010. The S & P 500 (red line) is collected by 2 percent, while the ETF TLT for long-term bonds (blue line) 17 per cent since the beginning of the year. The bond spectacular rally in recent weeks has become the hottest topic in financial stocks. Bond yields, which move inversely to bond prices fell to a record low. The yield for the bond 10 years the U.S. has fallen to its lowest level2.58 percent this week and many financial experts are scratching their heads and can not understand why investors would be happy to accept such low returns and I think this rally is just a bubble that burst soon. In my humble opinion, I do not think that the bond rally is a bubble, because there is demand for bonds for some time to get a great deal.
Baby boomers are the largest group of investors beyond retirement age if their risk tolerance is low. Your financial adviser will recommendchange their portfolio allocation to a more conservative, which has a higher percentage of fixed income securities. Data of the fund's flow of money from equity funds and pension funds. The amount of money in pension funds also exceed cash equity funds, which means that the savings in new bond funds will be allocated. The saving rate American went to 6 percent, and I argue that much of the savings "from the" empty nest meansBaby boomers, who still work and earn a good income, but reduced costs. From the perspective of investors in the United States, there are few alternatives for better investment for bonds. Property prices have fallen since 2006 and still continue to fall, so there is little reason to invest in real estate.
The stock market is still 30 percent below its value in 2000 and investors in this age group will bear two stock market crashes when their portfolios have fallen by up to 50 percentevery time, so I do not think many people would like to approach their risk their retirement nest egg in an asset class that is so volatile. Bank interest rates in the U.S. is near zero, then cash is not an attractive investment choice. With over 100 bank failures in 2010, the FDIC guarantees bank deposits is nearly broke, so keep your money in the bank is not sure how the owners of bonds guaranteed by the U.S. government. While a 2.4 percent rate of return candoes not seem like much, it sure beats a negative return!
During the event bond is a relatively new phenomenon in Western economies in recent years has done more for years in Japan, whose citizens are on average bond yields continued to decline in the 10th year and continues to decline. The Japanese made 10 years recently fell below 1 percent, so that 2.5 percent of its American counterparts look attractive in comparison. Property and equity pricesalso decreases from 1989 to 1 per cent return, bonds are more attractive than other asset classes. If the United States in the footsteps of Japan, returns must fall a long way over yet, which means that the bond rally should continue for some time to come.
individual investors are not the only ones who want to buy bonds. Banks can lend at interest rates already near zero percent for loads of bond yields are veryparticularly attractive if you buy them with leverage. If you can buy $ 1,000,000 worth of bonds with $ 100K cash and borrowing the rest at zero percent, would be equivalent to 4 percent rate of return of 40 per cent return on $ 100K. This type of trade is responsible for the profits of the banks reported fat. Banks prefer to treasuries, rather than borrow money to buy people buy risky assets such as real estate or businesses.
On top of all this demand from investors and banksFederal Reserve Bank announced that buy bonds as part of its quantitative easing program plans. The Fed can buy big and deep pockets - who bought more than a trillion dollars of mortgage-backed securities last year. Hearing this announcement, as speculators and hedge funds in bonds are now jumping in the framework of "front running the Fed."
U.S. Treasury bears have always maintained that the U.S. is like Japan, because Japan, unlike most U.S. government Guilt by foreigners such as China, who will one day shed their U.S. Treasury investments if they are out of my head from ballooning debt of U.S. ownership. If this happens, expect the yield, because they have problems in Greece and other European countries with government bonds. Well, this scenario actually happened recently in China sold more than $ 21 billion of long-term U.S. bonds in June 2010 and guess what happened? They were grabbed from domestic customers and> Bond yields continue to fall!
I think the penny is finally beginning to fall, what happens if there is deflation - the quality bonds are still the best investment. Even Alan Kohler, the long-poo, the "deflationeers," he advised his subscribers to Eureka Report this week to buy bonds, poohed case. If Australia has a problem with deflation as well? The stock market is about 25 percent below the 2007 peak result and how the U.S. S & P 500 has gone nowhere in 2010.Since the new restrictions on foreign real estate investors in April 2010 have been announced, property prices seem to have a plateau, and sales have slowed. Do not know about you, but I think deflation is like, if not already here.