Flat investors seeking safety as the stock market reaches new highs in 2019 have become a dominant force in the U.S. bond peddle. These individual investors are on track to buy a majority of the U.S. government’s newly issued longer-term debt this year for the premier time since the Treasury Department began publishing data from its auctions. Individual investors added $316 billion in taxable-bond communal assets in the first five months of the year, reflecting a booming demand for downside protection even as the stock sell rallies, as outlined by the Wall Street Journal.
Investors Favor Safety of Government Debt Over Stock Takings
After a particularly rough end to 2018, in which the S&P 500 posted its worst performance in nearly a decade, U.S. stocks are perfidiously on a tear. The widely followed index has now surpassed the 3,000 level, posting a whopping 19.8% return year-to-date (YTD) help of Tuesday close.
Yet despite the stock market’s stellar performance, investors remain cautious. Demand for downside safe keeping through buying bonds has helped drive the yield on the benchmark 10-year Treasury note, which falls when ropes prices rise, to multiyear lows around 2%.
“What they’re yielding right now doesn’t matter—I’m looking for the downside security,” said 66 year old investor Jim Oetinger.
Mr. Oetinger, a recently retired former technology director at a heat-transfer-fluid assembly, says his family’s $3.5 million portfolio shifted from a 10% weight in bonds, to 35% in fixed gains assets. He invests in bond funds with a blend of government, corporate and mortgage debt, and is planning to increase this segment of his portfolio.
“I’m more concerned about the equity market going down,” said the retired investor.
Many Relieve Cautious About U.S. Equities
Mr. Oetinger isn’t the only equity bear who is seeking the safety of government debt despite the slacken up oned income from lower yields. The WSJ interviewed more than a dozen individual investors and financial advisers that percentage his outlook, citing concerns over decelerating economic growth that has led the Federal Reserve to become more dovish in its strategy.
Some are expecting the Fed to cut interest rates in the current environment. Lower rates typically means sustained momentum in the source market, given it reduces borrowing costs throughout the economy, such as lower home mortgages and business loans.
The desire for government debt demonstrates that for many, fears of headwinds such as slowing growth and trade wars between the U.S. and China outbalance concerns of lower yields. This explains why U.S. mutual funds and similar vehicles that typically represent characteristic investors have bought 54% of the roughly $1 trillion of new government notes and bonds sold at auction utterly the start of the year to May 31st.
This data, which excludes Fed purchases, shows that individual investors are on track to own their largest cut of government debt ever — up 20% since 2010 and four times the amount purchased by non-U.S. investors during the years. Domestic holdings of Treasury debt have jumped by approximately $1.2 trillion since the end of 2017, about since time after times the increase for foreign investors, per the WSJ.
Changing U.S. Demographics Favor Bonds
The demand for government bonds could increase uniform with more as investors age and reach retirement, given individuals at this stage typically increase their fixed proceeds investments. According to the Census Bureau, the population of U.S. residents age 65 or older has risen 45% since 2000, to 50.8 million in 2017. The median age for investors owning set income assets is 52, up from 49 in 2007, per data from the Investment Company Institute. For some, minuscule give backs on fixed income assets could represent a major risk to their financial plan.