Much has been made about investors turning on the equity buying spigot since the beginning of the year. As the below chart shows, however, investors appear to be allocating as much of their investment dollars to bonds as they are to stocks. As noted in earlier posts, this allocation decision seems to be based on investors redeploying cash that was held taken out of the market in the run up to the presidential election and the fiscal cliff.
The downside to this allocation decision has been investors are getting a clear view of the negative returns that can be generated by bond investments as interest rates rise. Since the election, the 10-year Treasury yield is up nearly 50 basis points and the below chart details the loss in principal value that has occurred compared to the return generated by the S&P 500 Index.
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