Bond selloff could mean outsized portfolio changes at quarter's end
TLT•A steep bond selloff and stocks near record highs are expected to prompt unusually large quarter-end portfolio rebalancing. US pension funds reportedly were expected to sell $33 billion in stocks and shift the proceeds into bonds.
1. Rebalancing expectations
The quarter that ended Wednesday was expected to bring unusually large portfolio changes as the bond selloff left stock-and-bond allocations out of line with targets. Estimates for US pension funds showed $33 billion in stock sales around quarter-end, with the proceeds going into bonds; the estimate ranked in the 98th percentile of quarterly projections since January 2000.
2. Signs of bond buying
JP Morgan strategist Jordan Jackson said recent mutual fund and ETF flows showed investors buying more bonds. He said higher volatility and the drift from target allocations could make this quarter’s rebalancing as significant as any historically, with its full effects likely to become clearer early in the fourth quarter.
3. Portfolio adjustments
BlackRock’s Michael Gates said he was rebalancing model portfolios toward stock and bond categories he viewed as lower risk and offering greater upside, while limiting stock exposure. Advisers said clients can resist shifting money into underperforming bonds, even as the selloff pushed the 10-year Treasury yield to its largest quarterly increase since the second quarter of 2009.
