The big story in the markets this year was not about stocks.
Americans sold off their stock mutual funds, the most popular way to invest in American companies, at the fastest clip since 2008, the year the financial crisis began. That occurred despite the fact that the stock market itself rose steadily; the benchmark Standard & Poor’s 500-stock index ended the year up 13.4%.
Investors have been opting for the assumed safety of bonds. Money has been steadily flowing into mutual funds holding bonds of all sorts for the last four years, but the pace accelerated this year. The percentage of household investments in bonds shot up to 26% from 14% five years ago, according to Morningstar.
In the new year, a growing number of professional investors are betting that the craze for bonds has gone too far, perhaps dangerously so, as has been evident in the headlines from the year-end reports from large investment firms. “Bond PAIN in 2013?” Wells Capital Management’s chief strategist asked. “Caution: Turn Ahead,” BlackRock analysts wrote. “The inflection year,” said Bank of America.
This is not the first time that analysts have forecast an end to the rally in bond values that has lasted decades. But previously many of the voices predicting it were pessimists who believed that investors would sell off their bonds when they lost faith in the US government’s ability to pay back its bonds, forcing the government and many other bond issuers to pay higher interest rates.
The New York Times