Talking Numbers - CNBC | Yahoo Finance

Sponsored by
Talking Numbers

Retail is running from bonds, but are they making a mistake?

Talking Numbers

Since the start of 2013, a net of $70.7 billion have been withdrawn from bond mutual funds. Are retail investors right?

Retail investors are running away from bonds.

Data released by TrimTabs Investment Research shows more outflows from bond mutual funds than ever seen before.

Since the start of 2013, a net of $70.7 billion have been withdrawn from bond mutual funds. That beats the record of $62.5 billion for all of1994. The outflows have now been going on for seven consecutive months. Prior to that, bond funds saw net inflows every month for 21 months.

What changed in May? That was when Federal Reserve Bank Chairman Ben Bernanke hinted that the Fed’s $85 billion monthly bond-buying stimulus program may be tapered should the economy improve. Though the taper has yet to happen, it’s been enough to scare bond investors into selling their fixed income holdings. Along with it, yields on the benchmark US Treasury 10-year bond went from a low of 1.61% in May to 2.98% in September. Trading on the10-year closed at 2.84% on Wednesday.

(Read: Will the Grim Taper be a body blow to the wealthy?)

According to CNBC contributor Gina Sanchez, founder of Chantico Global, there’s a limit to how much higher interest rates can go at the moment given the pace of the economy.

“If you look at the strength of the economy, you probably can't get rates much higher than 3.2% - 3.5%,” says Sanchez. “Beyond that, there's just not enough growth in the economy to support higher rates.”

One measure the Fed has been following is the unemployment rate. Though official unemployment is down to 7%, Sanchez notes that the labor force participation rate is very low. In fact, at 63%, labor force participation is near the lowest it’s been since 1978.

“Structurally, that's bad for growth,” says Sanchez. “While there are definitely signs of recovery, this isn't a very strong recovery. We're not going to have 4.5% growth next year; it's impossible. So, we can't really have 4.5% rates.”

(Watch: Former Bank of Israel Gov. Fischer near Fed vice chair nomination: Reports)

Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, says the charts on the 10-year bond yields show that 4.5% is indeed possible.

“The direction of rates is likely higher but I disagree that there's not room to further upside to 4.5%,” says Ross.” In fact, I'm quite bearish on bond prices and bullish on interest rates; they go higher.”

Recent price movements suggest upside from here, according to Ross. “I think that tells us me that we will get a break above 3%, if not this year, then early 2014,” says Ross. And, as higher bond yields mean lower bond prices, Ross thinks bonds are headed down."

“I would sell those bonds like the masses that are getting out of those bond funds.”

To see why they both believe rates are headed up, watch the rest of Sanchez’s fundamental analysis and Ross’ charts in the video above.

More from Talking Numbers:

Munster: Five things to expect from Apple in 2014
Why Visa is the Apple of credit card companies: Fund manager
Why MasterCard’s stock split will make it ‘priceless’


Follow us on Twitter: @CNBCNumbers
Like us on Facebook:


View Comments (5)

Recommended for You

  • Inflation is about to fall-and fall hard: Insana

    I would bet inflationistas a truckload of scarce limes that inflation pressures are temporary and inflation is about to fall, says Ron Insana.

  • Agents get subsidized 'Obamacare' using fake IDs

    WASHINGTON (AP) — Undercover investigators using fake identities were able to secure taxpayer-subsidized health insurance under President Barack Obama's health care law, congressional investigators said Wednesday.

    Associated Press
  • Apple Hints New Products Near With Bigger IPhones Looming

    Apple Inc. (AAPL) signaled that the long wait for new products is nearing an end. With bigger-screen handsets in development, Apple said yesterday that shoppers are delaying buying new iPhones, which will weigh on sales in the current quarter ending in September. Yet rather than dissuade buyers…

  • World Bank lauds India PM, offers billions in aid

    The World Bank on Wednesday offered India up to $18 billion in financial support over the next three years while lavishly praising new right-wing Prime Minister Narendra Modi's "ambitious vision" for the country. Modi's Hindu nationalist Bharatiya Janata Party was elected in May with the biggest…

  • Wealth-Building Secrets of the Millionaire Next Door

    The tenets they follow can also put you on the path to financial prosperity and security. In the words of Knight Kiplinger, editor in chief of Kiplinger's Personal Finance magazine and, "discretionary spending -- the chic apartment, frequent travel and restaurant meals, consumer…

  • Best marijuana stocks to buy now

    Marijuana is going to be huge growth industry with lots of profits to be made, but that doesn't mean you buy a hyped up weed-related penny stock.

  • China's rich pimp their planes as jet market takes off

    Shanghai (AFP) - When a Chinese customer asked for the interior of his new Bombardier Challenger 850 jet to be covered with pricey black carbon fibre, the designer was shocked -- but happy to oblige.

  • Play

    How to Build Your Own Annuity

    Instead of paying an insurance company, financial advisor Allan Roth recommends building your own "indexed annuity" that protects principal while giving market upside.

    WSJ Live
  • Economists worry rising wages may catch the Fed off guard

    By Lucia Mutikani WASHINGTON (Reuters) - Wages may be growing at a faster clip than envisaged by U.S. policymakers, with a recent raft of business surveys showing an increase in the number of companies raising compensation. One closely watched wage growth measure, a gauge produced by the National…

  • What a Marijuana ETF Would Look Like

    The changes taking place around marijuana for medical use and for recreational use are the biggest in almost everyone’s lifetime. There are quite literally billions of dollars up for grabs for those who ...

    24/7 Wall St.
  • CEO: Rivers to quit Clippers if Sterling stays

    LOS ANGELES (AP) — The interim CEO of the Los Angeles Clippers testified Tuesday that coach Doc Rivers told him he will quit if Donald Sterling remains the owner of the team.

    Associated Press
  • Despite sanctions call, UK approves arms to Russia

    LONDON (AP) — Britain is still authorizing the export of arms and military equipment to Russia despite the government's call for tough sanctions over Moscow's arming of separatist rebels in Ukraine, a group of lawmakers said in a report Wednesday.

    Associated Press
  • China's Xi ends Latin American tour at Cuba barracks

    Chinese President Xi Jinping ends his Latin American tour on Wednesday with a symbolic visit to the barracks from which Fidel Castro launched the first armed assault of his communist revolution in 1953. As part of his regional charm offensive, Xi extended a hand to his Cuban communist ally with the…

  • A Boston Hedge Fund Made $950 Million On One Stock Today

    Shares of Puma Biotechnology (PBYI) were going...

    Business Insider
  • China food scandal spreads, drags in Starbucks, Burger King and McNuggets in Japan

    By Adam Jourdan SHANGHAI (Reuters) - The latest food scandal in China is spreading fast, dragging in U.S. coffee chain Starbucks, Burger King Worldwide Inc and others, as well as McDonald's products as far away as Japan. McDonald's Corp and KFC's parent Yum Brands Inc apologized to Chinese…

  • How Good Are Morningstar's Fund Picks?

    Over the long haul, Morningstar's gold-rated funds have topped their indexes. Below are descriptions of three of the firm's less-well-known selections.

  • Play

    Chris Davis: The Key to Long-Term Investing

    Davis has beaten the index by looking at cash flow, not daily price changes. Plus: Why more than half of all mutual fund managers don't deserve your money.

    WSJ Live
  • Detroit retirees back pension cuts by a landslide

    DETROIT (AP) — A year after filing for bankruptcy, Detroit is building momentum to get out, especially after workers and retirees voted in favor of major pension changes just a few weeks before a judge holds a crucial trial that could end the largest public filing in U.S. history.

    Associated Press
  • U.S. housing turning the corner, inflation creeping up

    By Lucia Mutikani WASHINGTON (Reuters) - U.S. home resales hit an eight month-high in June, suggesting the housing market was gradually regaining momentum and would help the economy to stay on a higher growth path this year. The third straight month of home sales gains, reported by the National…

  • JetBlue pilot among 6 arrested in Boston drug bust

    BOSTON (AP) — A JetBlue pilot from Florida is among six people arrested by Boston police over the weekend in an investigation of drug dealing incidents near the Boston Common.

    Associated Press