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“According to the Deutsche BankLong-Term Asset Return Study, the last time interest rates were near current levels, in the 1950s, Treasury bonds lost 40% of their inflation-adjusted value over the following three decades. With bond yields near all-time lows, Richard Barley of The Wall Street Journalwrites, “For a one-percentage point rise in yields, 10-year U.S. Treasury holders face a price drop of nearly nine percentage points. Bonds have become so richly valued that UBS is reportedly reclassifying brokerage clients who are overweight bonds as “aggressive” investors — most likely to avoid future lawsuits if and when bonds lose value.
After significant investigation I have come to the conclusion that bonds should now come with a warning label.
It is no secret that the federal funds rate is extremely low. It has been low for a while, and according to the Federal Reserve, should remain low through 2015. After that, according to Warren Buffett, the billionaire chairman of Berkshire Hathaway it may be difficult for interest rates and inflation to remain low….”
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