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Tags: bond market, ETF, exchange traded fund, financial market, financial markets, investors, iShares, Lehman, Market Commentary, stock market, treasuries, Treasury Bond, VIX

Signs of Investors Taking More Risk

Posted on 26 January 2009 by Allgen Financial

As investors lick their wounds from last years horrid stock market declines there are signs some investors are dusting themselves off and hopping back on the horse. In the last quarter of 2008, investors were scrambling to get into safe havens like cash, money markets and treasuries. The chart featured in this article is a chart of the iShares Lehman 20+ Year Treasury Bond (TLT). This exchange traded fund corresponds very closely to longer term treasury prices. Treasuries are considered a safe haven and as you can see in the chart as interest rates came down last year and has investors flocked to safety this fund appreciated. Since the start of the year money has been coming out of treasuries, which I consider a good sign. As investors sell out of treasuries this usually means that investors are willing to take on more risk and are looking outside of treasuries to find higher returns (ie. stock market or bond market). This could help the stock market going forward.

Treasuries declining are one sign that fear has been subsiding another sign is found a sentiment indicator called the Volatility Indicator VIX (aka fear indicator). As the market hit the lows back in November of last year the VIX got as high as 89.53, which by the way was the highest reading since the 21-year old indicator has been in existence. In the markets most recent decline last week which took the market down close to the November lows of last year the VIX only got as high as 57.36, far less than the November highs of last year. Going forward this doesn’t mean that the market is going to go into a bull market, but these signs are encouraging and could eventually lead to greater confidence in the stock market which could lead to a rise in stock prices.