(I first shared this story back in March. It was only a matter of time before it began to play itself out. That time appears to be now). Assets in bond mutual funds have more than doubled to over $2 trillion since the crash four years ago. After losing confidence in the equities markets, investors sought the perceived safety of the bond markets. The public thinks bonds are safe, but they’re not. Bonds are facing enormous risks. Financial analysts now fear a bond-market crash due to rising U.S. bond yields. That would devastate the portfolios of millions of investors. A jump in rates could trigger panic selling, leading to a full-blown crash. With the Federal Reserve keeping short-term rates near zero and long-term rates near historic lows with its bond-buying program, interest rates have nowhere to go but up. Bond yields are so low that savers who used to keep their money in Treasurys are being driven into the stock market in search of positive returns. They have no choice if they hope to simply beat inflation. “The yield on the 10-year Treasury bond, just under 2%, is up more than 35% from the record low in July," says Andrew Osterland. "Investors are almost certainly going to see negative real returns on their Treasury portfolios in the first quarter, a rare event that many feel has the potential to trigger a wider selloff in the market.”
Posted on: Fri, 21 Jun 2013 01:00:35 +0000
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