The 10-year treasury bond is trading near record lows
In today's low-yield environment, the U.S. government will pay you just 1.9 percent a year over the next 10 years if you invest in a 10-year treasury bond. That's an all-time low that has many investors scratching their heads.
"I'm not exactly sure what it's telling us except one thing, and that is there is a considerable amount of uncertainty right now," says
Typically, investors rush into treasuries during times of economic uncertainty, and a slowdown in growth in
Generally, yields at the level they currently stand signal that a deflationary environment of lower prices for goods and services is on the horizon. But looking at the official statistics, it's hard to believe the economy is headed for a deflationary spiral. The Consumer Price Index (CPI) issued by the
The worsening sovereign debt crisis in Europe may be to blame.
is teetering on the brink of bankruptcy, and officials there are worried about what a default would mean for
European banks that hold Greek debt. With a possible breakup of the euro on the horizon, investors feel comfortable in the treasury market for the time being. "There's a pretty widespread worry that a major European bank might fail," says
Yet another factor contributing to the current low-yield environment is the Federal Reserve's extremely cautious policy. Citing concerns about a slowing recovery, Fed Chairman
"The market has gotten very comfortable with that idea that the Fed's next move is going to be what would be deemed 'Operation Twist,' which will be extending the maturity of their balance sheet," says
But if the Fed move disappoints, Sarni says he could see the yield on the 10-year treasury bond move up by as much as 25 basis points. "There's a growing view out there that perhaps the Fed shouldn't be doing anything because it's not going to do any good," Sarni adds. Yields across the board have been near historical lows for months, and some believe that keeping longer-term rates low won't spur any more lending or borrowing.
Although volatility has picked up tremendously in the stock market, experts say stocks still look like a good bet for investors with a longer-term time horizon. "Over the long haul, stocks are a good place to be, but someone has to have at least a 12-month time horizon for that," Sarni says. If you're looking for a place to stash your money for just a few months, Sarni says the treasury market could be an option because of its traditional safe-haven status. But be wary of placing too much emphasis on safety, he adds.
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