There are a number of signals and patterns in the world’s financial markets, but one in particular that we track is money flows into particular asset classes of the markets. According to J.P Morgan Asset Management1, in the two year periods from July 2008-June 2010, $476 billion flowed into bonds versus a net outflow of $211 billion from stocks. It is well understood that the risk- averse investor sought a safe-haven during market uncertainty by purchasing bonds. By contrast, during the period of April 1998-March 2000 a staggering $424 billion flowed into stocks and a mere $20 billion into bonds. This period was the tech bubble; we know how that ended.
The incredible amount of money flowing into bonds has not gone unnoticed at Fragasso Financial Advisors. The current yield on a ten year U.S. Treasury now stands at a lowly 2.6%. Mortgage rates are at an all-time low, which has assisted the struggling housing market. (Unfortunately, Certificate of Deposits rates are embarrassingly low as well). We continue to seek appropriate bond and bond alternatives for those investors with a balanced portfolio, income needs and risk aversion. Our current bond portfolio reflects these market conditions. We feel confident that opportunities exist as we remain focused on the challenges in the bond market.
[1] Source: ICI, J.P. Morgan Asset Management as of 8/6/10. ICI- Investment Company Institute, www.ici.org
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values and yields will decline as interest rates rise. Bonds are subject to availability and change in price. Stock investing involves risk including loss of principal. CD’s are FDIC insured and offer a fixed rate of return if held to maturity. Daniel Dingus is Managing Director and Chief Portfolio Strategist at Fragasso Financial Advisors, a Pittsburgh-based investment and financial planning firm. Due to industry regulations, comments are not permitted on this blog. If you would like to contact the author, please email us at blog@fragassoadvisors.com. Dan can also be reached for comment at 412-227-3200.