Newspaper article The Christian Science Monitor

Bond Bulls Charge into New Year

Newspaper article The Christian Science Monitor

Bond Bulls Charge into New Year

Article excerpt

Move over equities. Here come the bonds.

Bond funds, which have played second-fiddle to stocks in recent years, are once again attracting investor dollars and posting tidy returns.

Much of the new money comes from foreign investors, who pumped a record $192 billion into fixed-income products in just the first half of 1997. Experts expect bond funds will again enjoy a profitable ride in 1998, although turning in a slightly lower total return than in 1997. "We are moderately bullish on bonds for 1998," says Michael Kennedy, who manages the Stein Roe Intermediate Bond Fund (800-338-2550.) The fund had a total return of about 9 percent last year. He expects a 7 percent return in 1998, perhaps a little higher. Gains for bond prices will mainly "come in the second half of the year," assuming that the US economy slows, predicts David Blitzer, chief economist at Standard & Poor's Corp. in New York. He rates bonds a "hold" for now, until the economy's direction gets clearer. New money The public's new infatuation is evident in the money trail: Investors poured more than $13 billion into bond funds in 1997. That follows two years of net outflows exceeding $8 billion, according to the Investment Company Institute in Washington. Factors shoring up bond values include a moderating US economy, low inflation, and volatility in equities markets. Mr. Blitzer expects the stock market to be especially volatile in 1998, which will make bonds look attractive to conservative investors. And two somewhat unusual factors provide special help to bonds: 1. Shrinking deficits. With its budget shortfall declining, the federal government has not had to raise as much money as in prior years by issuing new bonds. The reduction in supply of new bonds pushes up the value of existing bond products. Japan alone, according to investment house A.G. Edwards & Sons, is adding to its holdings of US Treasury securities at the rate of $5 billion to $6 billion a month. Japan already holds $321 billion in US Treasury issues as of Aug. 31. 2. Stock-fund managers looking for safety. If money managers shift additional dollars into bonds this year - as is expected - that will also help put upward pressure on bond prices. …

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