Page 25 - ARUBA TODAY

BUSINESS Monday 8 May 2017
A25
Surprise: Despite dire forecasts, bond funds are doing fine

the other potential chang- world finally seem to be in
es that drove up rates sync and moving forward.
wouldn’t happen. “This is the first year, re-
Longer-term interest rates ally since the global finan-
tend to correlate with ex- cial crisis, where you have
pectations for economic all countries contributing
growth and inflation, and to global GDP growth,”
the 10-year Treasury yield Browne said.
has fallen back to 2.35 per- A SLOW CLIMB
cent. William Irving, who man-
SPLIT OPINION ages the $4.3 billion Fidelity
While the bond market’s Government Income fund,
expectations for econom- also forecasts rates will rise,
ic growth have ratcheted but only at a very mea-
back, stock investors are sured pace. He expects
still optimistic and the Stan- the 10-year yield to stay
dard & Poor’s 500 index below 3 percent for the
remains close to its record near term because he sees
high. It’s a dichotomy that’s economic growth remain-
drawing more attention. ing on a slow course.
Erin Browne, head of mac- “We’re in an environment
ro investments at UBS Asset with aging demograph-
Trader Mark Puetzer follows the market on electronic screens at the New York Stock Exchange, in Management, leans more ics, lots of debt, income
New York. After turning in their worst quarterly performance in years, bond funds were supposed to the stock market’s side. inequality and excess
to keep struggling as the calendar flipped to 2017. But reality, at least so far, has turned out to be “Yields are too low based capacity,” he said. “All
nearly the opposite of expectations. Bond funds have made gains, though expectations for future on the pickup we’re start- these are supportive of
returns should remain in check. ing to see in the economy,” low growth, and low rates
(AP Photo/Mark Lennihan)
she said. “People largely go hand in hand with low
By STAN CHOE lion flowed into bond funds But rates began sinking right now are buying bonds growth.”He acknowledges
AP Business Writer during the first three months shortly thereafter. One big at the wrong time.” that the bond market faces
NEW YORK (AP) — Surprise: of 2017, double the pace reason: Republicans’ dif- Browne doesn’t think rates many risks that could push
Bond funds are doing just of last year’s start, accord- ficulty in overhauling the will go back to where they rates higher, such as the
fine. ing to the Investment Com- health care system, some- were before the Great Re- possibility of Washington
After turning in their worst pany Institute. thing they had been prom- cession, when the 10-year coming together on a big
quarterly performance in But it’s important to keep ising to do for years. The Treasury had a yield of stimulus program or of infla-
years, bond funds were expectations for future re- market’s thinking flipped more than 4 percent, for tion jumping higher, which
supposed to keep strug- turns in check. Today’s low to: If they have trouble with a while. But she does ex- would push the Federal Re-
gling as the calendar rates mean bonds are pro- that, maybe tax cuts, in- pect them to rise because serve to raise interest rates
flipped to 2017. Managers ducing less in income. And frastructure spending and economies around the at a quicker pace.
were busy early this year despite what’s happened
making sure expectations this year, virtually every-
were properly low for bond one agrees that prices for
funds, even after billions of bonds are more likely to
dollars left them in Novem- weaken than to rise in up-
ber and again in Decem- coming years. That’s be-
ber. cause bond prices move
But reality, at least so far, in the opposite direction
has turned out to be nearly of their yields, and most
the opposite of expecta- everyone expects yields to
tions. Rather than continu- rise, eventually.
ing to drop, bond prices
have perked higher this THE RECOVERY
year. That’s helped funds Bond funds got slapped
focused on intermediate- last November by a swift
term U.S. government rise in interest rates after
bonds return an average Republicans swept the
of 1 percent through the White House and Congress.
first third of the year, more The thought was that tax
than they have in three of cuts, a big infrastructure
the last four full years. Re- spending package and
turns have been better for other changes in Washing-
funds that add in corporate ton would lead to faster
bonds, which have higher economic growth, higher
yields than Treasurys. inflation and increased
The turnaround for bond borrowing by the federal
funds, which serve as the government. Each of those
safe corner of most 401(k) tends to push rates higher,
accounts, is only the latest and thus bond prices low-
example of predictions for er. The yield on the 10-year
the death of the bond mar- Treasury jumped above
ket being premature. And 2.60 percent by mid-March
investors have returned to from 1.85 percent on Elec-
them. More than $100 bil- tion Day.