Investors are “putting a back-up generator in the basement of a flood-prone area” by piling into longer-dated fixed-income securities with yields at about record lows, according to BlackRock Inc.’s Jeffrey Rosenberg.
Investors that have fled stocks after the biggest financial crisis since the Great Depression “have been flocking to fixed income, and that’s worked, but interest rates are at historic low levels and so there’s a lot more danger in areas of the market where they think there’s a lot of safety,” Rosenberg, the chief investment strategist for fixed income at the world’s biggest asset manager, said in a Bloomberg Television interview with Betty Liu.
U.S. Treasuries due in 10 years that are yielding 1.62 percent amid an inflation rate more than 2 percent signals “your savings are not keeping up with the level of inflation,” New York-based Rosenberg said. Average yields on investment-grade corporate securities in the U.S. have plunged 112 basis points this year and reached a record-low 2.73 percent on Nov. 8, according to Bank of America Merrill Lynch index data.
A 37 percent plunge in the Standard & Poor’s 500 stock index in 2008, when Lehman Brothers Holdings Inc. collapsed, has helped to dissuade investors from equities, Rosenberg said, even with 2012 returns of 15 percent outpacing the 5.36 percent gain for corporate and government bonds.
“There’s been a disconnect between investor preference and investment returns,” he said. “This has been an environment where investors are driven by fear, fear of a repeat of what they didn’t understand happened to their equity portfolio.”
BlackRock oversees $3.6 trillion worldwide.
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