Goldman Has Been Reducing Bond Exposure For A Year, Cutting Exposure To Losses If Interest Rates Turn

Wednesday, January 30, 2013 20:23
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Goldman Has Been Reducing Bond Exposure For A Year, Cutting Exposure To Losses If Interest Rates Turn

Tags: bonds | Goldman Sachs | markets

Among the voices expressing concern over the bond market, Goldman Sachs’ may be one of the ones taking action.
 
For over a year, the firm has been cutting its exposure to possible losses if interest rates begin to go up.

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Designating the current market as a bubble, the firm also borrowed money to lock in lower rates.
 
It also warns that neither investors nor many banks may be prepared for a so-called significant
repricing of the bond market.
 
Goldman’s CEO Lloyd Blankfein said at a conference sponsored by the New York Times that both banks and investors were likely unprepared for the risk of a bond market crash.
 
Goldman has been taking action similar to that done before the housing market crash in 2007.
 
The firm has been borrowing to lock in interest rates and simultaneously decreasing its exposure to fixed income investments.
 
Before the 2008 crisis, the firm was accused of betting against the mortgage-backed securities market so it could profit as the housing bubble burst.
 
The firm cautions that holders of riskier debt, such as junk bonds, could experience a larger drop in principal value when interest rates turn.
 
Investors have poured into high-yield fixed-income instruments as they seek income and return in an historically low interest rate environment.
 

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