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By Jason Stipp | 01-25-2010 04:25 AM

Bond Investing in a Rising Rate Environment

Goldman Sachs Asset Management's Jonathan Beinner on the recent flow of money into bond funds, the yield opportunity in shorter-duration bonds, and caution about longer-dated securities.

Jason Stipp: I'm Jason Stipp with Morningstar. With interest rates very low yet the prospect of possibly higher rates in the not too distant future, fixed-income investors could be in a little bit of a pickle.

Here with me to talk about some income solutions for investors is Goldman Sachs Asset Management Chief Investment Officer and Co-head of U.S. and Global Fixed Income Strategies, Jonathan Beinner.

Jonathan, thanks so much for joining me today.

Jonathan Beinner: Nice to see you Jason.

Stipp: So first question for you. We've seen at Morningstar a lot of funds have been going into fixed income strategies. So a lot of the fund flows that we have seen have been targeted in that area. So I'm wondering from your point of view is that merited?

Is the risk-reward really so attractive in fixed income that all of these assets coming into it really should be there? What's the opportunity there?

Beinner: Well, look, we have definitely seen that same trend in our mutual funds. We have seen significant flows across really wide range of strategies. And we do think that will probably continue. I think the way you should look at it is really it's coming from two places.

One is from very short-term, very low-risk investments. Right now, money market funds are yielding, if not exactly zero, certainly very close to zero, given what Fed funds are. So you are seeing people push out from pure low-risk assets out a little bit to get some incremental yield in their portfolio and some income.

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