CNBC “Why bond investors are the new ‘walking dead’
In today’s economic landscape, the contagions that are infecting investors globally are negative rates and low bond yields.
But the Fed doubling down on artificially low interest rates for almost a decade may have doomed the bond investor – as well as the saver and retirement investor – to a world where the rules have changed.
“If you have bonds in your portfolio today, you may be turning into an investment zombie.” — Stephen Scott at Longboard Asset Management
For those who have become wise to the changing landscape, the hunger for yield has them searching outside of U.S. Treasuries or municipal bonds. Unfortunately, this ends up contaminating their portfolios with even more equity risk and less portfolio diversification. So the contagion mutates and corrupts portfolios in a different way.
If interest rates continue to fall and eventually turn negative, investors will continue to search for yield in places with creeping correlation. If rates stay the same, expect more marching in place, without much hope for better portfolio yields. And if rates go up? Then bond investors may face losses and portfolio dismemberment.
As the pandemic of negative rates spreads to more countries, the amount of bonds in negative territory (currently more than $13 trillion) is likely to bloat. Total global debt is now more than three times the amount at the start of the credit crisis, and this is already beginning to eat away at the average investor.
The amount of debt, not to mention how much of it has a negative interest rate, is so widespread it is hard to keep in context. All the while, hope that rising global debt will ever get paid back is dwindling.
Instead, go for investments that access risks that aren’t tied to stock market moves (equity risk) or interest rate fluctuations (bond risk) like quality alternative investments…”
Abstract published for educational purposes only.