Long-Awaited Bond Bubble Burst May Finally Arrive If Investors Continue To Follow Institutional Investors Into Equity Funds

Monday, February 11, 2013 08:47
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Long-Awaited Bond Bubble Burst May Finally Arrive If Investors Continue To Follow Institutional Investors Into Equity Funds

Tags: ETFs | investor behavior | mutual funds

The talk of an impending bubble in bonds began as early as 2010 and warnings increasing last year as yields on the Treasury 10-year note dropped below 2%.

 
Bond mutual fund investors have so far not been listening. They added $615 trillion into bond funds between January 2010 and December 31, 2012, mostly out of fear of the equities markets.

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Part of the shift can be attributed to aging Baby Boomers who are shifting investment strategies as they retire.
 
But fear also has played a large part as investors became gun-shy of equity investments after the 2008 financial crisis.
 
This year’s first four weeks, however, have seen equity funds attract $20.7 billion, the highest four-week increase since April of 2000.
 
Add equity exchange-traded funds (ETFs) and that figure jumps to $34.2 billion.
 
Individuals tend to follow the lead of institutional investors and this time looks to be no different.
 
January typically tends to see higher mutual fund inflows as individual investors beef up their savings before the April 15 tax deadline.
 
If the increases in equity flows continue through May and June, it could signal that investors are reversing the trend and the long-awaited bond bubble burst might finally arrive.

 

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