Bond Investors World-Wide Have Had Little to Cheer About So Far This Year
NEW YORK -- Investors in the world's major bond markets are having their worst year since the early 1980s, and the final quarter probably won't bring much improvement, money managers and analysts say.</br></br>A combination of robust world economic growth, higher short-term interest rates and a strengthening dollar against major currencies has turned global fixed-income investing into a minefield. "This has been one ugly year so far and it doesn't look like it's getting any better," says Kenneth Windheim, who manages a $3.5 billion bond portfolio for Prudential Capital Management International.</br></br>With the exception of Australian, Canadian and high-yield, high-risk U.S. junk bonds, government bond markets proved dismal investments in the nine months ended Sept. 30. A basket of U.S. bonds, for instance, returned only 6%, while West German, Dutch, Japanese, British and French government securities provided negative total returns of 13.22%, 12.19%, 6.79%, 5.18% and 4.56% respectively during the period, according to Salomon Brothers Inc.</br></br>"You'd have to go back to before 1984 to find a year with such poor across-the-board performance," says John Lipsky, a director of international bond market research at Salomon. The returns are measured in U.S. dollars and include price, income and currency changes for bonds with remaining maturities of at least one year.</br></br>Even some of the savviest money managers in the global bond market took their lumps in the first nine months. "This isn't a market you should be messing around in if you don't know what's going on," says Denis Karnosky, a managing director and head of asset allocation at First Chicago Investment Advisors.