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Dennis Tubbergen Discusses the Potential Decline of the Bond Market

Tubbergen makes his radio shows available as podcasts on his radio website.

 

Grand Rapids, MI -- (ReleaseWire) -- 08/15/2013 -- For those people who are just too busy to stay on top of events in the world's economy, financial advisor Dennis Tubbergen lends a helping hand.

Tubbergen is a financial advisor, author, radio show host and CEO of PLP Advisors, LLC. Tubbergen does his best to give brief updates when it comes to some of the latest significant events in U.S. and world economics and politics and how these events may impact the average American.

Whether people enjoy his monthly newsletter at www.moving-markets.com or his blog at http://www.dennistubbergen.com, Tubbergen can be counted on to share his viewpoints and opinions. On August 15, 2013 his blog was titled Bad News for Bond Investors?

"Recent Federal Reserve hinting that easing may taper has sent bond markets into a decline," began Tubbergen. "While the long-term move in interest rates will likely have to be up, shorter term, depending on the direction of the stock market, that may not necessarily be the case. A decline in stocks might mean a bond market rally as stock investors look for a safe haven. Some bond fund managers are proceeding with caution."

Below he quotes from an August 3, 2013 article from Barrons.

Federal Reserve policy statements typically don't change much from one to the next, but the one released Wednesday was modified so little you might wonder if the Fed didn't just throw in a few gratuitous word changes while making absolutely sure not to alter its overall message, lest markets freak out again.

The Fed tweaked its assessment of 2013 economic expansion to "modest" from "moderate," and said inflation persistently below 2% could endanger economic performance, but tempered that by saying it expects inflation to rise. Treasury yields, which had risen earlier that day on some moderately—or should we say modestly—upbeat U.S. GDP data, subsequently retreated.

With all eyes, including the Fed's, on incoming economic data, most pundits believe the central bank will begin tapering its $85 billion monthly bond purchases in September. After the Labor Department released July employment figures on Friday, the 10-year Treasury note yielded 2.601%, up from 2.559% a week earlier.

Rates are poised to rise over time, and bond-fund managers keep making the case for unconstrained go-anywhere strategies not tethered to traditional benchmarks. Based on their performance, funds using these strategies might be on to something. They offer similar advice: Move into shorter-dated bonds that limit interest-rate risk and cut back on traditional fixed-income investments, at least for a while.

Mark Egan manages the Scout Unconstrained Bond fund (ticker: SUBFX), which is up 1.8% so far this year (a benchmark Barclays bond index is down 2.4%), and its 10.8% gain over the past year is tops in its class, per Morningstar. The biggest holdings of the fund still include many financial-firm bonds, but it has shortened the maturity of those, and lately it has been looking at more currency-related investments.

Egan says Treasuries and other high-grade bonds "are almost guaranteed to have low or negative returns over the next three to five years," and prospects for riskier bonds could be worse. "If you look at high yield and emerging markets, the overall yield level is far too low, and they are where they are because of artificial central-bank stimulus," he says, noting both areas underperformed Treasuries when rates surged in May and June, and that he's avoiding them.

"Egan says bond investors need to lower their expectations and keep some cash handy. Cash has a negative carry, but it doesn't go down in value, and it gives you the ability to buy things at lower prices," he says. "There's so much more downside than upside in the fixed-income space now."

"Markets will eventually “freak” as the article says," agrees Tubbergen. "As interest rates rise, bond funds decline. While that may not happen in the immediate future, long term it’s a much better bet."

So what is Tubbergen's bottom line here?

"Economic winter seasons can change the investment perspective of investors with both stock funds and bond funds losing value; it’s potentially to polar opposite of the autumn economic season," he concludes.

To read Tubbergen's blog in its entirety go to http://www.dennistubbergen.com and select his August 15, 2013 entry.

Tubbergen’s syndicated radio show can be heard on metro Michigan stations WTKG 1230 AM and WOOD Newsradio1300 AM and 106.9 FM.

About Dennis Tubbergen
Dennis Tubbergen has been in the financial industry for over 25 years and has his corporate offices in Grand Rapids, Michigan. Tubbergen is CEO of PLP Advisors, LLC and has an online blog that can be read at http://www.dennistubbergen.com. To view Tubbergen’s latest Moving Markets? newsletter, go to http://www.moving-markets.com.

The opinions expressed herein are those of the writer and not necessarily those of USA Wealth Management, LLC. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be construed as a guarantee. Prior to making any investment decision, individuals should consult a professional to determine the risks, costs, benefits and fees associated with a particular investment. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.