The bear market in bonds has arrived

The bear market in bonds has arrived
Joining Gross and Buffett, another top strategist says government bonds are too expensive. With or without the Fed, the march to higher rates has begun.
MAY 06, 2015
A bear market in Treasuries is under way, even after a late-week rebound, according to Royal Bank of Scotland Group Plc. “What we've seen in recent weeks is not a blip, it's the beginning of higher rates,” said William O'Donnell, head of U.S. Treasury strategy at RBS Securities in Stamford, Conn. “Everything unraveled all at once. What we've had is the first of a series of bouts of bond-market vertigo.” (More: Gross says 35-year bull market coming to an end) Declines in Treasuries the past three weeks have changed the fortunes of large fund managers, and had market prognosticators working to figure out the next move. RBS's strategists said there's more pain to come. The 30-year bond yield will rise to 3.5% this year from its Friday level of 2.9%, Mr. O'Donnell said. As economic data in Europe look stronger and the Federal Reserve discusses when to raise interest rates, “the market is beginning to reassess the level of rates,” he said. (More: Forget a rate hike – Peter Schiff expects more quantitative easing from the Fed) Mr. O'Donnell joined Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc. and Bill Gross, the manager of the $1.5 billion Janus Global Unconstrained Bond Fund, in a growing chorus saying that government bonds are too expensive. Fed Chair Janet Yellen said that long-term Treasuries could jump when the central bank raises interest rates.

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