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Market Thoughts 6.20.13

The Bond Market: A Current State of the Union

Eric Freedman
CAPTRUST Chief Investment Officer

Following a 30-plus-year bull market in the fixed income or bond market, the path forward is much more uncertain. While investors await the next move for fixed income, unless bond prices move higher (and, by definition, bond yields move lower), historically low interest rates indicate that bonds will offer lower total returns than most bond investors have experienced—and perhaps come to expect—during recent periods. Bond market trends since May, including yesterday’s capital market reaction immediately following the Federal Reserve’s meeting, suggest that the fixed income market could experience further volatility. The Fed indicated yesterday that it may begin to slow its bond purchases as the economy shows signs of improving. With such a significant bond market player tapering its participation, investors may have concerns about who will replace the Fed’s steady demand. We provide some historical context before describing bond investors’ options in the current climate.

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