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When will the Bond Market be attractive again?
Wednesday 29 April 2015
For years the bond market has been driven systematically to the zero interest level. As a result more and more money will flow into the stock market. Is there a danger that private investors will eventually exit the stock market, re-discovering the bond market? What kind of interest rates are necessary to tempt them?
Looking at the EURO currency and its bond markets, to me there can be no doubt: Unless 10-year bonds do not yield
5 % to 6 % p.a. there is not going to be a real avalanche back into the bond market. Private investors will be looking for true top quality ratings in addition, where they have an almost 100 % chance of repayment in full at maturity of their bonds. And the outlook for inflation and currency has to be a stable one. Likely soon?
Until this scenario will come true, the stock market will keep the upper hand. Company dividends yield 2 % to 3 %. On top the outlook for growth and dividend increases is good. The bond market has a long way to go. With every bond falling due in the next years, a big portion of private money will end up in the stock market. This process has just only started. Whether we like it or not, we are heading into a new financial era for private investors: Dividends will replace interest income.