Bill Gross, co-founder of the $1 trillion asset management company PIMCO, thinks the U.S. bond market is finally running out of steam after rallying over the past 30 years. What does this mean for fixed-income exchange traded funds (ETFs)? One analyst thinks it means shifting positions into emerging markets.
For the better part of three decades, Treasuries have rallied, pushing the 10-year Treasury yield from 15.8% in September 1981 to 3.89% as of March 25, 2008, reports Sree Vidya Bhaktavatsalam and Christopher Condon of Bloomberg.
However, excess borrowing in developed nations will lead to inflation, says Gross. The result will be a rise in interest rates and downward pressure on bond prices, exposing long-term fixed-income investors to loss.
With evidence that the bond markets of developed countries will be under pressure, Gary Gordon of ETF Expert points to emerging markets for some fixed-income upside. He explains that emerging markets have strong balance sheets and large trade surpluses, which are forecast at $550 billion for 2010, according to John Middleton of Seeking Alpha. This should help attract investor money and push bond prices up.
- PowerShares Emerging Market Sovereign Debt (NYSEArca: PCY)
Sumin Kim contributed to this article.
