Bond Buyers Beware, The Best Days are Past

26. March 2010 by Dan Walkow, CFA, CMT.

The great bull market in bonds, read the decline in interest rates is over. It has been a fantastic cycle since 1981 for bondholders and mortgage holders for almost a full generation. Interest rates always went down and until recently stayed down. Its over.

The massive monetary stimulation by governments the world over now has to be financed and given massive amount of financing required the price of money (interest rates) is on the rise; its only the beginning.

Last year’s meltdown and subsequent “monetary rescue” by central banks is a game changer and has signifigant ramifications for investing and borrowing alike.

For investors this means bond prices will be under pressure and capital appreciation of fixed income investments will be limited at best and pose signifigant downside risk over the next several years.

For borrowers such as mortgage holders the risk of increasing mortgage rates is almost a certainty, in my opinion, time to lock in that floating rate or at the very least refinance using one of those split mortgages where you can fix a portion and let the balance float. If you do not you will face higher mortgage costs in a few years perhaps as much as double.

We have and continue to position client portfolios with a rising interest rate environment in mind, you should too!

Read what Bill Gross at Pimco, perhaps the worlds largest and most successful bond investor has to say here.

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