The Rally That Wouldn’t Die! – Wall Street Journal – 01/14/12

“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 – 01/14/12

Economic Concerns

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.


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