Monday, June 18, 2012

Why Are 10 year T bonds Attractive?

So, I have been wondering.  A lot.  With the rate on 10 yr T's down to 1.6%, how can that be anything other than a sucker's bet?

I mean, do you seriously believe that there will be inflation rates of <=1% for the next ten years? 

And that the US is going to find a way to solve the rate of increase of the deficit?  I don't mean the debt, I just mean the deficit.  No plan out there to solve the debt.  We see Spain facing rates of 7%+.  If US rates go back up to just 3% or 3.5%, anyone holding 1.6% T's is going to get hammered.

However, here is an answer.  At least it gives a rational explanation.


Woj said...

Gary Shilling recently noted on Bloomberg that the reason to buy Treasuries is for price appreciation, not yield (
Separately, Gary Becker commented on his blog that "long term interest rates tend to be an average of current and expected short term rates" ( If the Fed Funds rate is still effectively zero percent in 5 years than current 10-year Treasuries will almost certainly have appreciated in value over that period.

Anonymous said...

I thought it said BLONDE in the headline!!!


The Blonde

Kindred Winecoff said...

Exactly. It's the closest thing to greenbacks -- liquid, etc. -- that still has positive yield. Well, out to 10 years anyway. Shorter maturities are zero or negative.

John Thacker said...

Well yes, the Cleveland Fed reports that, yes, its latest estimate of 10-year expected inflation is 1.19 percent.

That does appear to be what the market is saying.