Standard & Poor’s isn’t the only one warning on the dangers of debt.
Mutual fund and exchange traded fund (ETF) manager Rydex/SGI recently released a white paper that “identifies potentially serious interest rate and credit risks that could affect all segments of the bond market.”
The firm manages a mutual fund that inversely correlates to the movement of Treasury bonds.
“Now that the worst of the economic crisis seems to have passed, investors appear to be disregarding recent history and piling into bonds as some kind of safe haven,” said Kirk Barneby, a Rydex/SGI porftolio manager and author of the report. “There is, however, no ‘risk-free’ or even ‘low-risk’ scenario on the horizon for most fixed-income assets. We’re concerned that’s a future for which many fixed-income investors are simply not prepared.”
Stock ETFs fell Monday after S&P cut its ratings outlook on U.S. debt to negative.
“Actively managing duration, including the ability to go to a negative duration, may well be a powerful tool in managing interest rate risk going forward,” Barneby said.
Read the disclaimer; Tom Lydon is a board member of Rydex|SGI.
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. 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.