I’m seeing smart money in the bond market selling on rallies and not doing a whole lot of buyi...
7 Reasons to Buy Bonds
07/29/2014 9:00 am EST
Most people think bonds are boring but trust us, they’re not. There are times when bonds are the most exciting and profitable markets and we believe this is one of those times, suggests Mary Anne and Pamela Aden, editors of The Aden Forecast.
Bonds have several very important positive factors going for them. Here are the most important reasons bonds are bullish:
1. Slow global economy
Even though there are many improving signs, the overall global economy remains lackluster. Growth is generally sluggish and improvements have come slowly.
For example, the US has only now regained the jobs that were lost since the beginning of the 2007-08 recession. This took an awfully long time, far longer than in previous recoveries.
More impressive, however, was the US’s dramatic downward revision in its GDP for the first quarter. It plunged nearly 3%, which was far more than expected. Plus, it marked the biggest downward revision since records began 38 years ago!
2. Growing deflationary pressures
This sickly GDP number further fueled deflationary pressures. And this too will keep upward pressure on bond prices.
3. Low inflation
The same is true of low inflation. It’s bullish for bonds and, so far, there are few signs it’s picking up. This month, for instance, world food prices declined for a third month. The US producer price index also declined. And even though some commodity prices are rising, others are not. So, no big sign of inflation yet.
4. Global Hot Spots
As tensions escalate in the world’s hot spots, bonds have become even more attractive. That’s because bonds are a safe haven during times of turmoil.
Considering the fast moving events in areas like Iraq and Ukraine—and the many repercussions—bonds become a magnet for global investors. Like gold, safe US government bonds are a shining star.
5. Super low interest rates
Interest rates are very low all over the world. And it looks like they’re going to stay low for a long time. Aside from Yellen, other central bankers feel the same. This means bond prices will stay firm and rise further (remember, bonds and interest rates move in opposite directions).
6. Aging baby boomers
Baby boomers are getting older. Older investors tend to be more conservative with their money. For the most part, they can’t afford to take a speculative flyer, like they might’ve done in their younger days.
That’s why many baby boomers are opting for the safety of bonds instead of stocks. Bonds have recently been stronger than stocks. And, as this ratio continues to rise, bonds will keep outperforming stocks. That is, they’ll provide greater profits.
7. Our technical indicators remain bullish
Bonds have been the big winners so far in 2014. They’ve gained much more than other investments and we think this is going to continue in the months ahead, probably at least until yearend.
That’s why we continue to recommend buying and holding long-term US government bonds. And we advise keeping the largest portion of your investing portfolio in bonds.
We also recommend the bond ETFs, which move with the bond price. Our favorites are ProShares Ultra 20+ Year Treasury ETF (UBT), iShares Barclays 20+ Year Treasury Bond (TLT), SPDR Lehamn Long Term Treasury (TLO), and iShares Lehman 10-20 Year Treasury Bond (TLH).
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