Sallie L. Krawcheck, once president of the world’s largest wealth manager, tells The Daily Ticker that the U.S. economy now feels just about right for financial markets--neither too sluggish nor too overheated. But the former head of Bank of America’s Global Wealth & Investment Management division says rising bond yields pose big risks for investors.
The 10-year Treasury yield reached its highest level in a year on Wednesday at 2.24% before falling slightly Thursday. Treasuries—as well as other bonds—have lost value this year since bond prices fall when yields rise, and vice versa. Year-to-date the 10-year Treasury (^TNX) has lost about 1% while the Dow (^DJI) has gained 14%.
“I worry that people think bonds are safe [returning 100 cents on the dollar at maturity if something doesn’t happen in terms of credit,” says Krawcheck. “But there’s real interest rate risk,” And bond funds are particularly vulnerable since they never mature, unlike the individual bonds they hold.
Krawcheck,now owner of 85 Broads, the global women's network, is also worried about the $2.6 trillion money fund market which “lots of individual investors believe is risk free. It’s not,” says Krawcheck.
“Eighteen months ago there was a large money fund that was 72% invested in European banks when things looked like that would implode or explode,” says Krawcheck. “And there’s no capital backing money funds as it stands today.”
But that could change. Krawcheck says the SEC and the industry is moving on the issue but until new rules are finalized these funds represent a risk.”.”
When asked if she was contacted to head the agency, Krawcheck demurred, telling The Daily Ticker’s Aaron Task:
“This is where I have to dodge and weave. I have loved the financial services industry. It’s been my life’s work to be part of it….The ability to try to help one’s industry is a good thing to round out anyone’s career, not just mine.”
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