Bonds Losing Ground Along with Stocks
Right now, with the stock market struggling, many people are worried about investing in riskier assets. As a result, there has been recent interest in U.S. government bonds. Treasury investing has been on the rise, since it is considered a “safer” move than stock investing. However, things are changing rapidly.
Debt auction boosts supply of U.S. government bonds
One of the essential rules of the market is that, theoretically, supply and demand sets the price. U.S. Treasury notes have been in demand, so they have advanced. But the other side of the equation is about to come into play. $64 billion in debt auctions are expected this week, and that means supply is about to be inflated. Bloomberg describes these effects on the desirability of U.S. government bonds:
“Treasury investors are wary of supply,” said Jane Caron, chief economic strategist in Burlington, Vermont, at Dwight Asset Management Co., which oversees $70 billion. “There will be a lot of supply coming down the road, and the government is very active in intervening in the markets. As a Treasury investor you have to be cognizant of their activity.”
Is now the time to dump your stocks?
Many people are viewing the current stock market troubles as an excuse to dump stocks. But without Treasury investments to turn to, many of them are doing little more than cutting their losses and pulling out. This could be a mistake down the road when the market recovers (as it is likely to do). Instead of relying entirely on share price to make a decision about keeping a stock, Talk Stock Trading recommends that you also look at the dividends:
Even if prices are dropping the dividends may not be. Search for dividend yields. A dividend yield equals the company’s annual dividend divided by the price of one share of stock. The dividend yield changes as the price of one share changes. So now that prices are moving lower dividend yields are moving higher.
Whether you invest in bonds or in stocks, now is not the time for rash action. Rather, it is a time for reflection and making solid decsions with sound reasoning.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
Tags: stock market, stock market news, investing blog, U.S. government bonds,
economy, investments, debt auction
