Few investors in these troubled times would dream of expecting double digit returns. Most are just looking for somewhere reasonably safe to park their money while they wait out the eurozone crisis, the U.S. fiscal cliff and the possibility of another double dip. The trouble is, that panicky flight to safety is creating a new kind of bubble — this time in U.S. bond markets.
It’s a bubble that inflated further yesterday as the Fed continued Operation Twist, its attempt to push down longer term interest rates. But with lower rates come lower yields — and that’s just the trouble. Yields on 10-year Treasuries recent hit 220-year lows. Real returns — after accounting for inflation, that is — are negative. Yet still, investors rush in. Why? Because the U.S bond market is the only thing that’s considered a “sure thing” these days — gold is off 14%, the amount of rich country debt that’s rated triple-A has been cut in half over the last five years, and even bank deposits aren’t safe (as MF Global reminded us).
Still, paying the government to babysit your money isn’t the only option. For more on where to find safety and returns in the next few years, read my latest Curious Capitalist column in this week’s TIME magazine.