As American stock investors surely have noticed, prices are bouncing around like a red-hot grounder on natural turf - up one day, down the next.
So far, though, investors have not chosen en masse to shift money into bonds - traditionally considered a stable, if considerably less rewarding, investment alternative to corporate stocks.
Indeed, last year and so far this year, money flowed out of most of the nation's 2,250 bond mutual funds with their $530 billion in taxable assets and $266 billion in municipal bonds.
Investors were likely climbing on the fast-moving equity train.
But bond-fund managers, with perhaps a tinge of self-interest, suggest that now would be a good time for investors to rebalance their portfolios.
"It is always prudent to go back to your long-term portfolio objectives and diversify risks," says Geoffrey Kurinsky, manager of the $1.5 billion MFS Bond Fund, in Boston. "Bonds are a good hedge for investors."
Rising stock prices may have pushed the equity portion of an investor's portfolio up to 90 percent. But he or she may prefer a more cautious 60 percent, with 40 percent in fixed-income investments.
"The stock market is walking on thin air," warns Daniel Fuss, manager of the highly rated Loomis Sayles Bond Fund in Boston. It may be time, he adds, to take notice of some high-yield bonds.
A good quality corporate bond is yielding nearly 8 percent. With inflation running at 3 to 3.2 percent, that means an after-inflation return of about 5 percent.
"That's attractive historically," says Ken Taubes, manager of the Pioneer Strategic Income Fund in Boston.
What may be less noticed is that the bond market - like the stock market - has entered lively times. "There is a lot of turmoil," says Mr. Kurinsky.
Seeing that investment drama daily, William Gross, manager of the nation's largest bond mutual fund, confesses to "a lot of sleepless nights" this year.
"This past quarter has seen the most dynamic, most iconoclastic bond market since 1981," says Mr. Gross, who chooses investments for the $31.5 billion PIMCO Total Return Bond Fund in Newport Beach, Calif.
Gross relishes the investment opportunities and challenges the bond market presents. He finds it "fun" to go to work.
Several factors are influencing bonds.
For instance, those investors seeking the relative safety of bonds are often choosing the "highest quality" of all - US Treasury securities.
On the supply side, the federal budget surplus has meant the stock of Treasuries is shrinking. Uncle Sam, in fact, is buying back some $30 billion of his long-term bonds.
This demand-supply picture has pushed up prices and lowered the yield of a 30-year Treasury bond to about 5.85 percent. That is just under the yield on Federal funds, the money commercial banks lend to each other overnight.
Bond experts call this an "inverted yield curve," since usually long-term debt, with its greater risk, offers a higher yield than short-term debt.
Gross suspects the inversion could get more extreme, should the Federal Reserve push short-term rates even higher to slow down the economy, as Wall Street expects. And this inversion could last for months.
"The New Age economy is one which favors Treasuries," Gross says.
Despite the inversion, bond-fund managers generally love the anti-inflation stance of Fed Chairman Alan Greenspan. "Fed policy is perfect," says Mr. Fuss.
In the case of corporate bonds, the supply-demand picture is different. Companies have been huge borrowers, selling debt to finance repurchases of their own stock or to buy high-tech equipment.
So yields on corporate bonds have risen well above that of Treasuries.
"There is not a homogenous bond market anymore," says Gross.
As a whole, bond funds have not performed well in this market. The average taxable bond fund has had a one-year return of 1.58 percent, according to Morningstar, a Chicago firm that tracks and rates mutual funds. Their return so far this year has been 1.15 percent, a better pace.
Fuss's $1.6 billion fund achieved a 4.1 percent return in the first quarter, 5.8 percent in the past 12 months. It ranks No. 1 of the 10 biggest bond funds.
His fund takes on some risk. Holdings include some Brazilian, Canadian, and Thai bonds.
PIMCO Total Return aims primarily at conservative institutional investors, and thus sprinkles the portfolio with a smaller proportion of higher-risk, higher-yield bonds.
So far this year, Gross has beaten the bond averages by only 0.1 percentage point. He usually aims to beat the average by 1 percentage point a year.
His reputation for performance is such that when a German financial giant, Allianz, bought PIMCO Advisers last year, Gross was given an annual $39.8 million pay package of stocks and cash over five years. The goal was to keep him on board.
Pioneer's Mr. Taubes offers several reasons for buying mutual-fund bond shares. They offer diversification, he says. The funds invest in 100 or so different bonds. Most people don't have enough money or market knowledge to diversify to the same extent by buying bonds directly.
Further, bond funds "do the paperwork," reinvest interest, and provide tax information.
Finally, bond funds offer liquidity. The investor can sell his or her shares at any time and get his money out. That is simpler than, say, selling an individually owned portfolio of 20 or so different bonds.
BEST OF THE BONDS
Bond funds continue to struggle in today's market. If you own one, you should be happy if it is in the black. A very small group of taxable bond funds that focused on US treasuries or emerging markets managed to produce double-digit returns.
Here are the best-performing taxable bond funds of the first quarter of 2000:
Fund name 1st qtr. 1-yr. 3-yr.
Am. Century Target Mat 2025 Inv 18.8 4.11 8.4 800-345-2021
Am. Century Target Mat 2020 Inv 14.7 2.2 15.7 800-345-2021
Phoenix-Goodwin Emerg Mkts Bd A 12.1 49.63 5.2 800-243-4361
JP Morgan Emerging Mkt Debt 11.0 34.4 N/A 800-521-5411
Alliance Global Dollar Govt A 10.3 36.0 6.3 800-227-4618
Wasatch-Hoisington US Treas. 10.2 2.6 10.1 800-551-1700
Am. Century Target Mat 2015 Inv 10.0 -0.1 12.1 800-345-2021
Pioneer High Yield A 9.3 31.7 N/A 800-225-6292
Fidelity New Markets Income 8.7 38.1 9.4 800-544-8888
Fidelity Advisor Emg Mk Inc T 8.7 37.4 9.2 800-522-7297
T. Rowe Price Emerg Mkts Bond 8.6 29.7 5.5 800-638-5660
(c) Copyright 2000. The Christian Science Publishing Society