Bonds Enter the Big Time As Investors Hedge Bets; Investment at Record Levels, but Will Rally Last?
Amid happy bedlam on the three dozen bond trading floors scattered about the New York metropolitan area, a piercing wail of anguish rose last week from the respected Bridgewater Associates Inc.'s bond managers.</br></br>"This bond rally has been brutal," said the Wilton, Conn.-based investment advisory firm's daily report, as it agonizingly confessed it had recently lost heart and bet against the bond market rise. "For years, it seems, we've been waiting for a secular breakout of bond yields to 1960's levels. Here it is, and we're short. Obviously it's painful to have missed this move."</br></br>The bond trading business - with the exception of the short-lived and perilous junk bond boom of the late 1980s - has traditionally been a back room gentlemen's game. It was the stock market that drew the headlines, the high rollers and the rapt attention of millions of small investors.</br></br>"The stock market is a lot easier for the layman to understand," said Larry Jones, president and chief executive of the GovPX Treasury market pricing service, which provides instant computer data on bond trading. "The bond market is different in that it is a fairly complex animal. It depends on macroeconomics," a measurement of the economy on a national scale, "which {small investors} may have taken in college, but they do not understand the real dynamics."</br></br>Now they hunger to know more, and are joining institutional investors in tossing money into a bond market that has reached record levels in the past few weeks. With President Clinton's deficit reduction and tax policies indicating a slow-growth, low-inflation economy to many investors, with interest on overnight deposits at a minuscule 3 percent and with the stock market volatile and life uncertain, bonds have become hot items even as long-term Treasury interest rates have sunk to an all-time low of less than 7 percent.