Advisers urge bond investors to abandon ship in face of QE2

Quantitative easing causing plenty of unease among clients; ‘interest rates are harder to pick than stocks'

Nov 16, 2010 @ 3:08 pm

By Jessica Toonkel

Financial advisers are using the unexpected jump in interest rates to persuade clients that it's time to get out of long-term bonds.

Last week, the Federal Reserve commenced its second round of quantitative easing in a bid to push mid-and long-term interest rates lower, and thus boost lending and spending. Instead, interest rates have spiked over the past few days, as the Fed has been forced to entice hesitant institutional buyers into purchasing government paper. Nevertheless, prices on longer-term bonds have continued to sag, boosting yields in the process. Indeed, the yield on the 10-year Treasury hit 2.91% yesterday, the highest since Aug. 5.

“Interest rates are harder to pick than stocks,” said V. Peter Traphagen Jr., an adviser at Traphagen Investment Advisors LLC, which has $240 million in assets under management.

Many advisers have been trying for months to persuade clients to bail out of long-term bonds. But investors, still shellshocked from the 2008 market crash, believe long-term bonds means safety.

But with QE2, clients are asking what they should do.

“I just had a conversation with a client the other day about what they should do in response to the Fed's move,” said Nathan White, chief investment officer of Paragon Wealth Management, which manages $65 million in assets.

“I told them that I would rather own a stock where I know the risk I am taking can be higher, but at least I am knowingly taking that risk,” he said.

Paragon has been shifting clients from long-term bond ETFs, like iShares Barclays 20+ Year Treasury Bond ETF Ticker:(TLT), into dividend-paying equity ETFs like the SPDR S&P Dividend ETF Ticker:(SDY).

Similarly, for the past few months Traphagen has started to move its clients' fixed-income allocations from 10-year durations to four- to five-year durations. “We felt that clients were not rewarded enough to go out further on the yield curve and there was a potential that rates may move higher at least in the near term,” Mr. Traphagen said.


What do you think?

View comments

Most watched


Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.


Young professionals see lots of opportunity to reinvent the advice experience

Members of the 2019 InvestmentNews class of 40 Under 40 have strategies to overcome the challenges of being young in a mature industry.

Latest news & opinion

Target-date fund design may be wrong for retirees

Researchers suggest the funds don't adequately hedge against sequence-of-returns risk in retirement.

InvestmentNews' 2019 class of 40 Under 40

Our 40 Under 40 project, now in its sixth year, highlights young talent in the financial advice industry. These individuals illustrate the tremendous potential of those coming up in the profession. These stories will surprise, entertain, educate and inspire.

New Jersey fiduciary rule: Pressure leads to public hearing, comment deadline extension

Industry push results in chance to air grievances on July 17 and another month to present objections.

Galvin to propose fiduciary rule for Massachusetts brokers

The secretary of the commonwealth is proposing a fiduciary standard in response to an SEC investment-advice rule he views as too weak.

Summer reading recommendations from financial advisers

Here are some books that will keep you informed and entertained during summer's downtime


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print