Have bonds become the least safe part of your portfolio? “Bonds have experienced a bull market for over 35 years, with bond investors used to earning interest income plus capital appreciation derived from declining yields,” said Steve Cucchiaro, founder of 3EDGE. “Now they can suffer from capital depreciation as rates back up with historically low interest income.” Cucchiaro is most concerned about long-term Treasury bonds because they are most sensitive to rising rates. In Cucchiaro’s view, there seems to be a growing awareness that extraordinary monetary stimulus alone, provided by the world’s major central banks, will not be sufficient to lift global economic growth to desired levels. He said increasing calls for fiscal stimulus coupled with rising rates of certain inflation measures has resulted in recently rising bond yields and lower prices for “bond-like” equities such as utilities and REITs. As for international bonds, Cucchiaro said he is avoiding German and Japanese issues as their respective central banks push negative interest rates to spur economic growth. “The Bank of Japan announced in September that they would modify their policy approach by targeting a steeper yield curve in Japan,” said Cucchiaro. “This policy shift by the BoJ could mark an interesting turning point in global monetary policy if it proves to be the first of the world’s major central banks to realize that ultra-low interest rates and even negative interest rates alone are insufficient to normalize economic growth and inflation.” In the U.K., Cucchiaro said the immediate impact of the Brexit referendum has thus far been somewhat cushioned by a decline in the value of pound sterling. However, with an upcoming referendum this fall in Italy, Great Britain’s vote to leave may have marked the beginning of the dissolution of the European Union. Finally, Cucchiaro said emerging markets bonds have done well in 2016, but “could be vulnerable to a rise in the U.S. dollar” which would hurt emerging market currencies.
Subscribe to TheStreetTV on YouTube:
For more content from TheStreet visit:
Check out all our videos:
Follow TheStreet on Twitter:
Like TheStreet on Facebook:
Follow TheStreet on LinkedIn:
Follow TheStreet on Google+:
source
