After Thirty Years of Bull Market Investors' Love Affair With Bonds Is Not Over

Two Vantage Capital Research Experts Offer Fixed-Income Investors Their Insights For 2014

After Thirty Years of Bull Market Investors' Love Affair With Bonds is Not Over

Two Vantage Capital Research Experts Offer Fixed-Income Investors Their Insights For 2014

In a recently released video and thought leadership paper, Carl Marcotta, president of the Bond Division at Vantage Capital Research and Raymond Stuttard, head of International Bond Portfolio Management, help investors decipher the factors likely to impact the bond markets and their investment decisions in 2014.

• In his Fixed Income Market Update, Brown discusses the three main questions facing the fixed income markets in 2014.

- How might tapering expectations change if economic data point to continued strength?While current expectations are for the Federal Reserve (Fed) to modestly reduce the scale and scope of its bond purchases, more supportive economic data could materially change the speed in which the Fed executes its tapering and thus impact the yield curve and level of rates.

- If labor market conditions continue to improve, how long can the Fed remain committed to keeping short term rates low? While the Fed has established an unemployment rate threshold before it plans on raising short term interest rates, the markets could challenge this commitment and cause further increases in rate volatility.

- How long could the corporate credit market continue its strong performance? Although the outlook for corporations looks positive, credit spreads are close to the tightest levels seen over the past 20 years.

• In his 2014 Global Bond Outlook, Stuttard argues that the overarching theme for the global bond markets in 2014 is leadership transition in terms of central banks and inflation prospects.

- More Sakй, less Bud (Budweiser)… The Fed is yielding to the Bank of Japan as the marginal buyer of assets.

- The Eurozone: From reverse into first gear. Europe is overtaking Japan as the major economy with the least inflationary pressure.

- The investment implications will likely be a continuation of the prominent themes in 2013: weaker yen, pressure on relatively weaker emerging markets, and outper-formance by higher-quality European fixed income.

• Overall, 2014 will likely be a year of continued uncertainty in regards to economic and labor market conditions, the regulatory environment, and government policy.

Whatever the outcome, however, bonds should continue to play a critical role in an investors' overall asset allocation strategy. Bonds have many important features such as income generation, principal protection, diversification, and the ability to target specific liabilities. These characteristics can be beneficial to investors regardless of the market environment.

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