The Rally That Wouldn't Die! - Treasury Bonds Have Been on a 30-Year Tear - Aaron Skloff, AIF, CFA, MBA - CEO Skloff Financial Group
“The Rally That Wouldn't Die!
Treasury Bonds Have Been on a 30-Year Tear. Whether or Not the Party Can Last Is Beside the Point—
There Are Far Better Places to Put Your Money” – The Wall Street Journal, January 14, 2012
The European crisis and domestic economic concerns have
pushed 10-year Treasury yields, which move in the opposite
direction of price, to about 1.86% now from about 3.3% at the
beginning of 2011, as investors flocked to safety.
But a repeat of Treasurys' 2011 performance seems unlikely,
experts say. To match last year's price rally, the 10-year note's
yield would have to drop to about 1.05%, far below its record
low of 1.72% last September.
At the same time, any number of factors could push yields
sharply higher—and torpedo Treasury bond prices.
For investors who merely want to buy bonds and hold them to
maturity, to collect the interest, the bigger risk is that interest
rates remain below the rate of inflation, thus eroding returns.
Already, with inflation clocking in at 3.4% in November, the
latest data available, investors who buy 10-year Treasurys today
and hold them to maturity would lose about 1.5% annually.