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Friday, February 22, 2013

Worst Trade of the Year? #Bonds #Equities

Worst Trade of the Year? #Bonds #Equities

"Instead, bond funds have taken in $37.6 billion - less than equities to be sure, but still a strong allocation and not indicative of a pronounced move out of bonds and into stocks.
So where has the equity side gotten all this money?

Money market funds - the dead pool that became so popular after the crisis - have lost $37 billion so far, helping explain the boon to stocks, and revealing an investor mentality in which the stock market is seen as a much better store of wealth than the zero-yielding alternative.

This has been pretty much the whole idea as the Federal Reserve has rolled through three rounds of bond buying known as quantitative easing designed to force yields down so much that investors will have no other choice but to seek out risk.

"It works until it doesn't," Ferry said. "That's what QE does - it turns the capital markets into an ATM machine. As long as there's not an exogenous event, you're OK."

(Read More: Central Banks Gone Wild: What Can Investors Do?)

If there has been a rotation, in fact, it probably is more from safer fixed-income instruments such as the benchmark 10-year Treasury note into higher-yielding bonds such as corporate junk.

Broadly, bonds as measured by the Barclays Composite Index have returned about 3 percent in 2013, but Treasurys have lost 3.5 percent. Corporate high-yield has returned 1.3 percent, while dividend growth is up nearly 6 percent."

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