Bonds Get Their Turn

Equities made a strong run in late 2010 and early 2011; now, it may be time for bonds to make one of their own. Ever since commodities became uncomfortably hot in early May, inflationary pressures have cooled, helping push 10-year treasury yields closer to the 3.0% mark.

Weak economic data for Q1 point to an extension to some form of quantitative easing well into the summer. While the Fed‘s QE2 bond-buying program is set to end in June, slower-than-expected Real GDP growth lends to continued quantitative easing and delay in any interest rate hikes, allowing buyers of US treasuries to breathe a sigh of relief.

The bull market in fixed income hasn’t been exclusive to treasury bonds. Lower benchmark yields have translated into opportunities for large corporations to issue debt at low costs. Companies like Google have taken advantage of the surge in demand for bonds, opting to use spare cash to release its first issue of corporate bonds.

The final component to the rally in bonds is the shaky outlook on global economic growth. If recent indications that growth is slowing in China prove accurate, more and more investors will run from equities and into safe-haven plays like gold, the US dollar and bonds.

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