Stocks Shining as Bonds Lose Luster

Emmanuel Kayode submits: As most investors know, bonds have seen slightly better returns that stocks over the last 10 years. Recently, while stocks have been surrounded by uncertainty and slightly bearish, the bond market has served somewhat as a safe haven. But with speculation that we are in a bond market bubble, will stocks be on a possible path to recovery for the upcoming decade?

By Wade Slome: Uncertainty is like a fin you see cutting through the water - many people are uncertain whether the fin sticking out of the water is a great white shark or a dolphin. Uncertainty generates fear, and fear often produces paralysis. This financially unproductive phenomenon has also reared its ugly fin in the investment world, which has led to low-yield apathy, and desensitization to both interest rate and inflation risks.

Kyle Bass has been betting that Japan, which has the highest government debt-to-GDP ratio in the world, will eventually lose control of the bond market once investors wake up to this concept.

MILAN — Financial investors would prefer Italy avoided new elections, concerned they would just postpone economic reform and bring little hope of resolving a parliamentary deadlock, a survey by U.S. bank Morgan Stanley showed on Friday. Only significant funding problems and a much deeper recession would reignite the sort of fear that pushed Italy’s 10-year bond yields above 6.5% in July, according to the survey of 317 market participants carried out this week.

Via Pater Tenebrarum of Acting-Man blog,

U.S. Treasury yields bottomed out in July 2012 after three decades of a steady grind lower. Since then, they have had their ups and downs, but eventually, the yield on the 10-year U.S. Treasury hit a high of 2.06% on March 11, right before the financial crisis in Cyprus blew up and the consensus began to shift its focus to fears over an emerging slowdown in global growth. That backdrop set the stage for a big rally in Treasuries as investors piled back into them, sending yields all the way down to 1.63% on May 2.

Value Expectations submits: While many investors often seek safety in the fixed-income market in times of economic uncertainty, corporate bond yields have dropped to their lowest levels in decades, causing those investors to seek the steady income of dividend-paying stock. Along with the stability of income as stock prices fall, dividend-paying stocks can be used to hedge against inflationary pressures and as a way to gain cash without moving in and out of positions.