4 Reasons To Look Beyond Treasuries
While treasuries remain one of the safest investments money can buy, investors have alternatives
Treasuries remain one of the safest investments because they're backed by the full faith and credit of the
Sooner or later, interest rates will rise.
The Federal Reserve has kept the target range for the federal funds rate (what the Fed charges banks to borrow money on a short-term basis) between zero and 0.25 percent since
Yields are at historic lows.
The yield on a two-year treasury is currently 0.49 percent, and the 10-year treasury only yields 2.62 percent. Gendreau says investors not being paid enough for the risks (like the threat of interest-rate hikes) of investing in a 10-year treasury right now. Yields have historically been much higher. In mid-2007 when economic growth was much more robust and demand for treasuries was much lower, 10-year treasuries were yielding as much as 5 percent. "Yields are really so low that they're not attractive," Gendreau says.
Stocks are yielding much higher.
So far this year, investors have shunned stocks.
As of the end of July, investors have pulled more than
It can happen fast.
The bond market can change quickly. Gendreau says the Fed won't raise rates until there are some signs of inflationary pressure, but once inflation is perceived to be a real threat, the Fed may make quick moves to contain it. "Interest rates are close to zero. ... No one thinks that's sustainable," Gendreau says. "Everyone is going to be looking ahead to the day when the Fed starts to hike rates, to basically raise them to more normal levels." He cautions that once the Fed believes it's time to raise rates, investors could see a trend of steadily increasing interest rates. That's why it's important to be diversified in the bond portion of your portfolio, among various asset classes like corporate bonds and treasuries--so when rates go up, your portfolio doesn't take a big hit.
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