According to a recent report from Fortune Magazine, it seems that government bonds are in such bad shape that even bond managers are questioning the logic in buying them right now. The report explained that prices for government bonds are sliding as economic recovery takes hold and feds struggle with funding a huge budget deficit.
Investors Advised to Brace for Bond Market Hit
Forecasters have been projecting higher interest rates for the near future, which has resulted in some strategists counseling investors to hold their cash and prepare for a hit to the bond market. However, investors realize that the government will be issuing more bonds soon and as a result are asking for higher yields on Treasury debt, also known as high-yield bonds.
As of Monday, the yield on the 10-year Treasury note hit 4 percent, which is the first time this has happened since October 2008 – the height of the financial crisis. Now the government is preparing to sell $167 billion worth of Treasury debt this week alone.
Other Bonds Are Skyrocketing
Despite the issues we’re seeing with government Treasury bonds, other bonds have bounced back nicely. In fact, the prices for corporate bonds, as well as municipal and mortgage bonds have been soaring, which has in turn brought yields down. Unfortunately, this leaves investment managers feeling as though they haven’t been compensated for the risk they’ve been taking.
Because there is a bit of instability between the various bonds, some investment managers suggest that investors stay out of the bond market for a bit. The economy may be showing some improvement, but the deficit and lowering yields show that diving in right now could result in loss.
