Some analysts have been carefully monitoring the bonds market, watching for any sell orders that could trigger an avalanche effect in what looks like a bubble. But a mass exit from bonds and bond-related exchange traded funds (ETFs) may not happen anytime soon if the equities market continues its sideways trading.
Investors are sticking to the bonds market because bonds offer a safe store of value, remarks Jon D. Markman for Money Morning. Bond funds have accumulated around $559 billion in the 30 months through June while U.S. stock funds shrank by $209.4 billion.
Only a sustainable surge upward in the broad stock market would pull investors out of bonds and into any possible new bull market, Markman opines. Nevertheless, risk in financial institutions and an aging population have investors sticking to reliable income-paying investments like bonds.
Declining yields, increasing prices of the bond market and little or no threat of inflation have kept investors in bonds, according to Vine Investor for Seeking Alpha. In a comparison of the S&P 500 and the change of the S&P to yield the same amount of money in a 10-year period as a 10-year T-note, the S&P would increase dividends whenever Treasury yields would get within range of the stock market yields. [Treasury ETFs Step Back; What Next?]
The only time when Treasury prices dropped and yields increased was during times of runaway inflation and interest rate hikes to keep a sustainable economic expansion. Meanwhile, stocks, which appreciated along with inflation, attracted more money. History has shown that when the S&P is stagnate and inflation remained low, bonds became choice investments because of their guaranteed returns. [Bond ETFs That Yield More Than Treasuries.]
For more information on the bonds market, visit our bond ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.