Danger in Fixed Income?

Top-rated bonds have been a staple portfolio item among investors of all types for decades. Once considered a safe investment, fixed income securities are in danger of becoming risky investments amid low interest rates and high bond prices. The high demand for AA- rated bonds in recent years has pushed yields down to record lows. According to the Wall Street Journal, some worry that even a small increase in interest rates could eat away at bond prices. In some extreme cases, yields are below the inflation rate, causing investors to lose money. As a result, influxes of yield-hunting investors are positioning themselves into convertible bonds, junk bonds, and equities. Many corporations are now incentivizing investors by offering dividend yields which provides a steady stream of income. Goldman Sachs recently announced that they prefer stocks over bonds.
“Given current valuations, we think it is time to say a ‘long good bye’ to bonds, and embrace the ‘long good buy’ for equities as we expect them to embark on an upward trend over the next few years,” Goldman’s Peter Oppenheimer and Matthieu Walterspiler wrote in a “Global Strategy Paper” dated Wednesday.