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Bonds make a comeback
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June 19, 1997: 1:05 p.m. ET
High-flying stock market prompts a resurgence in bond investments
From Correspondent John Defterios
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NEW YORK (CNNfn) - Money continues to pour into stock mutual funds, but the stock market's surge this month has made some investors nervous, leading to a resurgence in bond investments.
In fact, the Investment Company Institute estimates $2.5 billion flowed into bond funds last month, up more than 200 percent from April.
From financial luminaries such as John Templeton to financial powerhouses including Merrill Lynch and PaineWebber, investment strategists say the time is right for bonds.
"I think given the level of the stock market, it wouldn't be surprising to see a correction. And in fact, for that reason, we are somewhat underweigthing stocks and overweighting bonds here," said Mary Farrell, a strategist for PaineWebber.
Besides hedging against a possible stock market sell-off, strategists point to the bond-friendly economy.
"The economy is gonna slow in the third and fourth quarters," said Chief Investment Strategist for First Albany, Hugh Johnson. "In my judgment, that would be reflected with bond prices going up, interest rates down. Bond holders would make a lot of money in that kind of an environment."
The basic bond types include tax-free municipals, best suited for investors in high-tax brackets. Also corporate and junk bonds, which pay higher yields because they are riskier. And, of course, U.S. government bonds.
"Government bonds many investors like because they are the 100 percent safe investment. You never call an investment guaranteed, but if the U.S. government doesn't pay off its bonds, that's gonna be the least of our worries," said Farrell.
If you don't want to pick your own bonds, you can buy a bond fund, though look for one with low expenses. For corporate bonds, Loomis Sayles bond fund is the best performer over the past year. American Century tops government bond funds, and for a mix of stocks and bonds, the IAI balanced fund comes in first.
Most bonds are considered safe because they pay a fixed yield, but if you choose long-term bonds, be careful -- surging inflation can erode the value of your initial investment over time.
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