By Mary Anne & Pamela Aden
The bond market is super strong. It's again hitting new bull-market highs as it surges higher into the new year.
As you know, long-term U.S. government bonds were the big investment winners in 2014, gaining 46% (see Chart 1 ). It looks like that's going to continue as 2015 evolves, very possibly throughout the year.
Why bonds are set to rise further
We know that may seem strange, especially considering the big rise bonds have already had, but it's really not. Here's why:
There's a huge demand for U.S. bonds from all over the world. Even though U.S. interest rates are very low, U.S. bonds are still paying a higher interest rate than rates in most other countries. That makes them more attractive and the world's favorite safe haven.
The U.S. dollar is also super strong. That, too, enhances the appeal for U.S. government bonds, especially for foreign investors.
The same is true of the U.S. economy. It grew 5% in the third quarter, its biggest gain in a decade. That's in sharp contrast to the sluggish growth or recessions in other countries. And again, this makes bonds very attractive.
Deflation has the upper hand on the world stage, and inflation is low. It's probably going to stay low for quite a while, considering the plunge in the oil price. This environment is also ideal for rising bond prices.
Plus, U.S. interest rates will likely stay low throughout 2015.
With the rest of the world on thin ice, it would be too risky for the Fed to raise rates prematurely. This means bonds will probably keep rising for most of this year.
The bottom line? Keep your bonds.
Until we see otherwise, long-term U.S. government bonds are a good buy and hold. The major trend is solid, and it remains up. This market is strong and bullish, and government bonds continue to be the best overall investment in today's environment.
We also like the bond ETFs. The Ultra 20+ year Treasury /zigman2/quotes/207070561/composite UBT -2.91% has consistently been the strongest, and it's our favorite. For now, these markets could decline some in the weeks ahead, which would be normal, because they've risen far and fast.If so, that'll provide an even better buying opportunity. Either way though, buy some bonds if you haven't bought yet.