As financial advisors, money managers, and investors alike all begin to plot portfolio strategy for 2017 and beyond, one of the biggest questions is what to do about the bond market. For those of you keeping score at home, note that the Barclays Global Aggregate Bond Index had its worst month ever in November. Bloomberg reports that the venerable index saw $1.7 trillion (and yes, that is a "t") wiped off the index's value last month. And with the consensus calling for higher rates, an uptick in inflation, more supply, and less central banker demand, well, the macro outlook doesn't look all that encouraging.
However, as the saying goes on Wall Street, something that everyone knows, isn't worth knowing. As such, it isn't surprising to see that sentiment models for the bond market are currently hitting extreme negative readings. For traders, this means that the current spike in rates and the corresponding dive in prices for bonds and bond proxies is, at the very least, likely in the late innings of the game. And from my seat, it will be how the bond market acts during the inevitable countertrend move (i.e. a bounce in bond prices) that may tell us whether the move has legs from a bigger picture point of view.
At the same time though, investors other than the pure passive types, may want to consider making some strategic tweaks to their holdings as we head into the new year. And no, selling all your bonds isn't the solution.
Remember, a secular cycle - one that lasts for many years - doesn't move in a straight line. So, even if the great bond bull is indeed ending, this does not mean that one should abandon the asset class altogether.
So, I've come up with six things investors and ...
