This past week’s cash outflow from the bond market was the biggest since 2013 when the Fed stopped QE bond buying stimulus program. The reasons for the exodus includes Greece problem with debt payment, Germany’s bund yield rise and the forever talked about U.S. short term interest rate hikes.
The total money leaving fixed income funds was $6 billion dollars this week. This is the highest since 2013. With the Federal Reserve having talked up interest rate hikes for several months now, the bond market is being hit. Yields are rising and bond prices and the prices on fixed income investments are falling.
This exit from fixed income investments could cause a rise in stock prices. Investors have to go somewhere. Many experienced investors are buying into foreign companies through ETF’s. (Exchange Traded Funds) Germany’s market seems to be of interest to a lot of investors currently. As the drum continues to beat from the Federal Reserve Chair Janet Yellen, investors are likely to continue to sell bonds, bond funds and fixed income investments.
Selecting the best time to sell out is not an easy task. Many people are waiting for economic data reporting. When employment numbers are reports or GDP numbers, interest rates may drop off allowing bond prices to move up a bit. Keep in mind that when the Fed does increase interest rates, it will likely already be built into bond prices. It may already be too late to escape the current phase of bond price deterioration.
If the Fed increases interest rates by less than the 0.25 percent in September, that may make investors again look at the bond market and fixed income market as places to invest. Until September’s Fed meeting, it is a guessing game as to what will happen next.