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Goldman: Bond Market Investors Are About To Get Crushed


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#1 WorkingPoor

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Posted 06 January 2013 - 09:35 AM

Goldman Sachs strategists have issued a big warning to clients hiding out in bond funds: You're about to lose your shirt.

The reason: interest rates began rising this week, and if they return to the historical average yield of 3 percent, prices for long-term bonds will plummet. (By their very nature, fixed income prices must fall if rates rise.)

"A reversion of risk premiums to historical averages of 6% nominal rates (3% real rates and 3% inflation) would suggest estimated losses in portfolios with bond durations of 5 years of 25% or more," equity strategist Robert D. Boroujerdi said in a note.

The yield on the 10-year Treasury hit almost 2 percent this week–an 8-month high–after minutes from the Federal Reserve's last meeting showed several members believe the central bank's quantitative easing should end this year. (Read More: End of Stimulus? What's Behind the Fed's Surprise Statement)

That's one giant bond buyer leaving the market.

Read more: http://www.cnbc.com/...3#ixzz2HCqKPpYo




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