It will be interesting to see what happens to bonds this afternoon when the Fed announces its QE2 plans. I have seen rationale for both rising and falling bond prices. However, once we get past this news, there is little disagreement about the future of the bond market - there is little upside potential and a lot of downside risk.
Bonds can only keep going up if interest rates keep falling. Problem is there is not much room left for interest rates to fall. If these record low interest rates stay steady for the next year, then bond prices should remain relatively steady for the next year. But inflation is coming - it has to given all the government spending and now QE2 which is just printing more dollars. The only question in the investment community is When - this month, by year end, by next summer.
In the classes I teach, I consistently hear people talk about putting most of their money in bonds funds thinking they are safe vs. the stock market which they view as a casino. This is not the way to view these two markets and bond fund holders are going to be sorry over the next several years.
Here is an article by Bill Gross at Pacific Investment Management (PIMCO), one of the country's most respected Bond Managers. Please take heed.
http://www.thestreet.com/story/10902225/bill-gross-qe2-signals-end-of-bond-rally.html
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