Tuesday, December 12, 2006

Bond risk is it worth or not

5 smart bond moves - December 25, 2006

Fortune Magazine) -- A plain-vanilla asset that generates steady returns - that's how most investors view bonds, and lately they've been living up to that image. Since the beginning of the year, most investments up and down the credit-quality scale have returned between 3% and 6%, according to research firm Lipper, just enough to deliver the two things that make fixed-income investments part of a balanced portfolio: a reliable income stream and safety of principal.

Bond-fund managers and economists predict more of the same in 2007. The spread between Treasuries and higher-yield (i.e., riskier) corporate and junk bonds is narrow, meaning that investors aren't really rewarded for taking additional risk. The markets seem to expect the Federal Reserve to cut rates, but Fed officials are saying they remain concerned about inflation - a hint that they may hold rates steady or at the very least will not cut them fast enough to satisfy Wall Street.

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