Some money managers fear prices for long-term U.S. government bonds could suddenly drop as the U.S. economic recovery gains strength. Fred Katayama reports.
The surprisingly resilient Treasury market rally has confounded Wall Street, and some money managers fear prices for long-term government bonds could suddenly drop. Ken Kamen of Mercadien Asset Management: SOUNDBITE: KEN KAMEN, PRESIDENT, MERCADIEN ASSET MANAGEMENT, (ENGLISH) SAYING: "The fixed income market is jsut flashing danger, danger, danger everywhere." (14:54:27) Stoking bond purchases: U.S. yields - while low - are higher than those of many other countries. And the uncertainty provoked by Britain's vote to quit the European Union sent even more money to Treasury's coffers. Investors also tend to buy bonds when they expect hard times to come. M Science chief economist Steve Blitz points to headwinds. SOUNDBITE: STEVE BLITZ, CHIEF ECONOMIST, M SCIENCE, (ENGLISH) SAYING: "The dollar is stronger and likely to get stronger. We have an election which is a tremendous amount of uncertainty." 12:50:44 But U.S. economic data have been strong compared to other countries. Consumer and producer prices are climbing, triggering concerns the bond rally will end. So what's an investor to do? Avoid long-term Treasuries that lock in historically low yields, says Jeff Tomasulo of Vespula Capital. SOUNDBITE: JEFF TOMASULO, CEO, VESPULA CAPITAL, (ENGLISH) SAYING: "If I was forced to find yield right now, I'd look at corporate bonds, adn I'd look at really good fundamentally strong companies that have high dividend yields." 14:39:00 Bond watchers say a sharp rise in inflation or strong U.S. economic growth could be the market's tipping point. That could entice the Fed to raise interest rates sooner than the markets currently expect and possibly end the bond marekt's three-decade long rally.