|
Bonds funds are struggling
|
 |
January 16, 1997: 12:41 p.m. ET
Investors are hot on stocks but bond fund yields remain weak
From Correspondent John Metaxas
|
NEW YORK (CNNfn) -- With inflation seemingly under control and interest rates languishing in the 6 percent range, can bonds compete with stocks as an investment choice?
Of the $237 billion of fresh money that flowed into the stock and bond mutual funds last year, $223 billion went into stock funds. Only 6 percent went into bond funds.
It doesn't take a market guru to figure out why there was such a contrast: The S&P 500 index returned an annualized rate of 22.39 percent, the 30-year Treasury bond yielded 4.14 percent and the Lehman Corporate Bond Index returned 2.9 percent. Bonds even made cash look respectable. The green stuff gaining 5.5 percent.
But rates on Treasury bonds have risen this month, leading to the question of when do rates become attractive enough to draw money out of the stock market.
"If the long-term bond yield moved back to the 8 percent level we would clearly be beginning to put some pressure as a competitive asset against stocks," said Scott Pape, manager of the New England Capital Growth Fund. "I think stocks would have difficulty in that kind of environment."
There is no one "magic number" for getting back into bonds, fund managers say. Several prominent mangers noted that even when rates climbed above 7 percent to 7.25 percent last September, investors did not lose their appetite for stocks.
Yet they add that bonds could become fashionable if stocks go through as ugly selloff.
"It's not so much what bonds need to do. The focus is stocks and what that market does," said Jim Bianco, research director at Arbor Trading Group. "Stocks need to re-introduce the element of risk and fall 10 percent off their highs to make bonds look good."
That might be more likely than many investors want to concede. The stock market has now lasted more than six years without a 10 percent correction, something never before accomplished.
When the end of the bull market does occur, it might be a good time to be prepared for a jump into bonds.
|
|
|
|
|
 |
|
