Investment Advisors Telling Clients to Shed Bond Holdings

Article excerpt

NEW YORK - Every time the bond market rally seems about to fizzle out lately, it rebounds. But a growing number of investment advis ers are telling their clients that the time has arrived to shed some bond holdings, particularly the long-term ones.

Although he does not give investment advice for a living, Lyle Gramley, the former Federal Reserve Board governor, offered some persuasive reasons this past week why bond prices may not have room to go up much more.

A trio of developments since autumn has laid the basis for better economic conditions later this year, he contends.

The inflation-fighting effect of the oil price collapse combined with lower interest rates should make more money available for businesses and consumers to spend. The dollar's decline over the pastyear will gradually restore the competitive health of the country's manufacturing sector.

""We are going to be looking at a strong economy later this year and that is going to put substantial upward pressure on interest rates,'' Gramley told a group of financial analysts gathered at a Wall Street hotel.

When economic growth accelerates, it normally coincides with burgeoning demand for loans to finance all sorts of activities, from investments in factory equipment to purchases of home furnishings. Rising demand for credit pushes up the cost of obtaining it, that is, interest rates.

For now, the economic tea leaves are ""puzzling'' to read, Gramley said, admitting they do not appear all that promising.

Employment growth in manufacturing continues to lag as industrial production contracts. …