Monday, August 16, 2010

Retail Investors Indicate Bonds are lousy deal right now ....

The retail investor has long been a contra-indicator of what's truly both a timely and good investment ...

Firstly, they often have trouble knowing the difference between a savings vehicle (holding time frame of under five years, generally; and very low expected return) and an investment vehicle (holding time frame of over five years; and relatively high expected return).

Add to that the mistiming of buying and the comedy of errors reaches Shakespearean proportions. 

Municipal bond mutual funds that report their figures weekly reported $953.9 million in new money from investors during the week ended Aug. 11, according to Lipper FMI. That was the biggest weekly inflow since March, and heavier than all but 33 inflows since Lipper started tracking the data in 1992 — 970 weeks ago.


Solender said because expectations are that the Federal Reserve’s target for interest rates will remain near zero well into next year, people are growing increasingly comfortable with the yields offered on municipal bonds — even though they have never been lower. (highlighting not in original)

The yield on a 10-year triple-A rated municipal bond sank below 2.5% for the first time last week, according to Municipal Market Data.

Article here


As opposed to that, IndexArb reports that the current average dividend yield of all the S&P500 dividend-paying stocks is 2.51% (with a reasonable expectation of future dividend growth), yet the retail investor saver piles into the bond market, potentially locked into a 2.5% yield for 10 years.


The Confused Capitalist

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