Wells Fargo & Co (WFC), Bank of America Corp (BAC): How to Navigate the Bond Market

Meanwhile JPMorgan Chase & Co. (NYSE:JPM) also has bearish bets. According to an annual newsletter to shareholders, CEO Jamie Dimon revealed the magnitude of the bank’s bond bet. He stated that if treasury rates sharply rose by 3%, the bank will stand to gain around $5 billion in the coming 12 months. The bank is also bearish on the Asian bond market and suggests that a cut in the Fed’s stimulus package will lead to investors dumping their bonds in developing nations.

However JPMorgan Chase & Co. (NYSE:JPM) continues to be a risky play and has recently been downgraded by several ratings agencies and research firms. So the question arises:

Are the Guys at Wells Fargo Crazy?

According to the Chief Fixed Income Strategist at Wells Fargo & Co (NYSE:WFC),

“We are now hearing that this is the onset of the dreaded bear market in bonds, but the truth is probably less exciting. The Treasury market, which was overbought, has adjusted to be more consistent with an economy that is growing—albeit slowly—and the absence of a crisis overseas. At the current higher yields, Treasuries have become more attractive versus German and Japanese government notes and bonds, so foreign demand might improve somewhat. I do not expect this market correction to push the 10-year yield beyond 2.25%.”

The above explanation sounds clear and realistic. I honestly don’t think that the Fed will destroy the bond market. The bond market seems to be spooked right now and will most likely rebound from the Fed’s shocker. But I also do not recommend investors to directly invest in treasuries, as they can turn volatile. However, investing in Wells Fargo & Co (NYSE:WFC) would be a great strategy to both limit exposure to bonds and enjoy the benefits of rising interest rates in the future.

The article How to Navigate the Bond Market originally appeared on Fool.com ad is written by Piyush Arora.

Piyush Arora has no position in any stocks mentioned. The Motley Fool recommends Bank of America and Wells Fargo. The Motley Fool owns shares of Bank of America, JPMorgan Chase & Co (NYSE:JPM)., and Wells Fargo. Piyush is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.