Tags: Minerd | bear | Market | Bonds

Guggenheim’s Minerd: Here Comes the Bear Market for Bonds

Thursday, 19 Apr 2012 07:16 AM

By Michael Kling

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Guggenheim Partners chief investment officer Scott Minerd, who warned of a coming financial disaster in 2005, predicts tough times for bonds.

Minerd told Fortune magazine that a generational bear market for bonds is on the way. 

"We expect the overhang in housing to be cleaned up by 2015," he told the magazine in an interview. "At that point the Fed will realize that inflation is becoming a problem and will begin to raise rates, and that'll be the beginning of the generational bear market."

Editor's Note:
Wall Street Insider: The System Is Rigged


Treasury rates, he predicts, will increase significantly over the next three to five years, which means bond prices will fall.

Investors holding Treasurys have done well the last 30 years, probably better than stock investors, but now the tables have turned, and they should be moving away from the bonds, if they haven't already.

"It's always hard to eliminate an asset class because I'm a staunch believer in diversification," Minerd told the publication. "But if you push me hard enough, I'd tell you that I would have no allocation to Treasury securities at this point."

Other types of bonds outperform Treasurys, without outsized risks, although they may not be liquid, he says, mentioning, asset-backed securities, infrastructure debt and commercial mortgages. For instance, you can buy a five-year commercial mortgage at 5.25 percent on an A-class property with 70 percent loan-to-value.

Guggenheim Partners also likes floating-rate securities, high-yield bonds, and some investment-grade corporate bonds, he says, citing Energy Transfer Partners, issued a bond yielding 4.6 percent.

Dan Fuss, who runs the Loomis Sayles Bond Fund, is also predicting a bear market for bonds.

“We're in the foothills of a gradual rise in interest rates. Once they start to rise, you're probably looking at a 20- or 30-year secular trend of rising interest rates,” Fuss said, according to Investment News.

If the unemployment rates drops below 7 percent, the Fed will probably stop buying Treasurys and their values will fall, he said. "Once that happens, you need to get out of the market risk that's in fixed-income and into the company-specific risk you can find in stocks."

Editor's Note: Wall Street Insider: The System Is Rigged



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