The herd of investors that are seeking yield from "safe" investments don't have a clue about interest rate risk?

Well, that might be part of it, but something has to be going on well beyond retail investors making new investments, or allocation changes. Heck, it could even be blown arbitrages, short covering?

This big bond rally, unlike the treasury boom back in late 08, includes the entire credit risk spectrum. Issuers today can float new issues, refi, and clean up balance sheets like never before. Pretty soon, someone is going to start floating bonds and buying back their own stock for cheap, or taking out others in some LBOs. T and VZ can float long bonds paying less than their current dividends...

You're right, this has become another fascinating market. I just wonder if it also represents a fundamental recognition of the "new reality" (the limits to growth in China, potential terrorism, post industrial America). In other words, a shift to preference for yield on the institutional side along with the retail overbuying. And by institutional, I include retail financial advisors.

Much like the New Economy mantra in 99/early 2000, the tea leaves are really pointing towards a serious booby trap. We're in the second year of a stock and bond market recovery. Third year is usually a pretty big pull back, punishment to the late arrivals for bonds. I studied every major equity correction going back to the great depression, and found that year two has NEVER been negative for stocks. Right now, we are negative in the midst of the second year. I'm thinking that we're due for a big equity move, that would correspond with a significant snap back for fixed income. I'm fairly good at the big picture stuff normally, but sometimes a bit early. But, looking at the ten year treasury chart, we're about to go either sharply lower from here, or zoom back up to 4%.

That's my thinking, fixed into short high quality with total return dependent on intelligent equity. But there is still substantial geopolitical risk, and we are in new territory with the continued success of China having a bigger influence on the world economy. Weak U.S. political and economic leadership is also a potential negative, but aggregate worldwide demand (developing countries) is a positive for equities, in the sense of being a long term owner, and not a lender, tracks inflation. Short term high quality bonds, dividend paying stocks with a focus on certain sectors.

High inflation is harmful to an overall economy. This also affects the market and companies badly. On the other hand, dividend-paying shares are what investors seem to favor at present. Record-low rates of interest make putting money in financial institution accounts illogical. The economic recovery may not necessarily be coming along too easily, however you will find plenty of businesses paying out dividends with a huge amount of money. There is a 15 year high of the average bond yield for corporations paying dividends. The dividend tax rate is low. Guarding against inflation is what many want dividend-paying stocks for with a revenue stream. Of course, dividend-paying stocks will not be as significant if Bush tax cuts actually expire.

Glaiza, welcome aboard. For a clients income exposure in asset allocation, we're in the early part of a defensive strategy. In may we began to shift funds to utility stock mutual funds, gold/silver etfs, and a couple precious metal open ended funds. What are you up to?

It is interesting, maybe a bit concerning, but stocks/bonds/commodities are all going north. I suppose that right there is too much money, chasing too few goods?

I remember 1994, where after a solid year for domestic and international stocks, and all fixed income, 94 was a very tough year. I think that is where we're going...

Regarding dividend paying stocks, something doesn't smell right. If dividend taxation is actually going to be high, it favors a company to use their own cash, instead of paying it out. Stock buy backs, debt repurchasing, and M/A activity would really be the best use of cash?

Bond market bubble busting bump...

Wow, this is quite a fast, painful correction.

We fortunately have gold/silver as hedge, and a fair supply of stocks and equity mutual funds.

10 year up 40% from 2.42 to 3.52. TLT down 13% since low on Oct 7. Thats a quick move for those of you thinking rates cannot jump quickly? Thoughts??

spammer go home

N. D., I'm almost wondering if this might be a blessing. If stocks continue to go up, bonds go down, come dow 12,000-13,000 there might be a place to roll some profits into? There are muni bonds and funds already in the 6% area, so there you got a nice TEY of 10%? I'm an asset allocation guy, so I'm not talking about "making bets".  

Muni bond funds now trading at prices there were at in Spring of 2009.

I'm taking it back, bonds have gone from bubble to at least fair value at this time. Give us about 5% more on the SP500, and I'll trade those dollars for munis... 

Seriously, this isn't really rocket scientist work is it?