Bond Market Braces for Rally's End --- Investors Stand in Precarious Position as Looming Cutback in Fed Purchases May Deal Blow to Funds
Smart analysts have been warning for years that the bottom could fall out of the surging bond market.</br></br>They were wrong. Bond yields went to unprecedented lows, pushing bond prices to unprecedented highs, and they just kept going. The weak economy, little inflation and exceptional Federal Reserve policies took bonds to unnatural levels.</br></br>But nothing lasts forever. At some point, the economy will become more normal and yields will rise to more natural levels. Existing bonds with their lower yields will fall in value. Bond-fund investors will lose money.</br></br>Many bond-fund managers think the process has finally begun. The yield on the 10-year Treasury note has risen to 2.7% from about 1.6% in early May. Treasury-bond funds have fallen in value. Money managers have begun selling funds holding Treasurys and other high-grade bonds.</br></br>The spark for this is the Fed's plan to start trimming its $85 billion in monthly bond-buying stimulus. Analysts expect that to begin between December and June.