International bond market thrives despite broad slump

October 21, 1990|By Thomas Easton | Thomas Easton,New York Bureau of The Sun

NEW YORK -- The global slowdown in business activity is rough on stock prices and wage earners, but for at least one market it means better times ahead.

"The outlook in international bonds is as good as I've seen it since the fall of 1987," said David Boardman, executive vice president of Rowe Price-Fleming International, the overseas money-management affiliate of Baltimore-based T. Rowe Price.

Global bond funds are among the few mutual funds registering any gains at all this year. For the first three quarters, they 'N wracked up an average gain of almost 6.03 percent, according to Lipper Analytical Services.

The T. Rowe Price International Bond Fund, managed by Rowe Price-Fleming, was up 14.90 percent through Thursday and Mr. Boardman forecasts a 20 percent gain for the year.

Its performance has so far been assisted by its exclusion of any U.S. bonds, which have performed poorly compared to those abroad because of the dollars recent decline.

Sales of the $375 million fund tripled from July to September and are up again in October, following the broad trend that has investors moving their money abroad.

That trend should continue, Mr. Boardman said. Economic growth in Europe and Japan is slowing, suggesting that bond prices there will increase as rates fall.

Meanwhile, U.S. rates are now among the lowest in the industrialized world, and the U.S. inflation rate is among the highest, an unattractive combination.

The recent federal budget impasse has further damaged the attractiveness of the U.S. markets. "At the moment, foreigners are voting with their feet," said Mr. Boardman.

Commerce Department statistics covering the first half of 1990, for instance, indicate the Japanese substantially cut back their investment in all manor of assets and anecdotal evidence suggests the trend has since become even more pronounced.

"The Japanese are thoroughly disillusioned with all things American," Mr. Boardman said. "The Europeans have always been more cynical."

A flip side of the investment flight, and resulting relative devaluation of U.S. assets, is its implications for industry. The lower dollar has made U.S. manufacturing increasingly cost-competitive. Even though economies are slowing abroad, Mr. Boardman predicted that whatever demand does exist abroad, particularly in Eastern Europe, will at least partly accrue to the U.S.

Consequently, the U.S. merchandise trade deficit, which has broadly, if erratically, improved since 1987, should be eliminated by the end of 1991, Mr. Boardman said.

The growth in exports, along with the current low manufacturing inventories, he added, should make the current contraction in business activity shallow and brief.

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