- 1. If the 10-year Treasury yield makes a prolonged and substantial move above 3%
- 2. If the European sovereign debt crisis flares up
- 3. And if tensions rise in the Middle East
By Hal M. Bundrick NEW YORK ( MainStreet)--Bonds may under siege and investors have been quick to take cover but don't expect a market of mass destruction in the short term. At least one analyst is keeping a cool head under fire. "We don't see a bond market Armageddon," says Russ Koesterich, chief investment strategist for BlackRock in a research report. "Though rates may overshoot to the upside in the near term and the long-term direction of rates is higher, the most likely near-term rate scenario is for volatile but sideways movement. We believe the 10-year Treasury yield will hover around 2.5% for the foreseeable future. There are a number of factors conspiring to keep a lid on long-term yields including foreign central bank demand for Treasuries."
The strategist also weighs in on other asset classes: "While we still believe that investors should maintain a long-term strategic allocation to gold, we are more cautious on the precious metal," he says. "Gold is likely to continue to be under pressure from rising real rates, a benign inflation outlook and poor supply and demand dynamics." Koesterich says his firm remains neutral on U.S. and Japanese stocks, cautious on eurozone equities but favors emerging markets over the next 3-5 years. --Written by Hal M. Bundrick