Don't Bet Against U.S. Treasury Bonds... Yet

Keith Fitz-Gerald

The yield on the benchmark 10-year Treasury bond fell as low as 1.976% on Thursday - the lowest yield in recent history.

This is not a surprise. In fact, I predicted this would happen in a column that appeared in Money Morning nearly a year ago.

I'm not bringing this up to brag, but rather as a warning to stay tuned. Because now that we've broken the 2% barrier, it's not difficult to imagine yields as low as 1.5%.

Remember your history.

During the Great Depression U.S. bonds actually traded at a negative yield as investors paid the government to keep their money. The idea was that they could get their money back from the government, but by leaving it in a bank or corporate bond they risked losing everything.

And that speaks to the core of what's rattled the markets recently.

U.S. Federal Reserve Chairman Ben S. Bernanke and our leaders continue to believe this crisis is all about liquidity, which is how they are trying to fight it. The markets, on the other hand, have figured out what I said when it started - that this is really about solvency.

There's a big difference and investors are beginning to worry about the return of their money rather than the return on their money. That's why they're running straight to U.S. Treasuries despite our nation's debt, persistent budget deficits, slowing economic growth, and near total lack of adult supervision in Washington.

So do you buy bonds at this stage?

I think not. The trade is overdone and if you are not in it already, you've probably missed the boat. But, you have arrived on the dock at a most opportune time.

Eventually, there will be higher rates. It doesn't matter how, or even why. Just that there will be.

So buy into the panic quite literally with ProFunds Rising Rates Opportunity Investment Fund (MUTF: RRPIX).

It's a specialized inverse fund that will appreciate significantly when the bond markets eventually reverse course, rates rise and confidence returns.

News and Related Story Links:

• Money Morning:
  Why Oil Prices Won't Stay Down For Long
• Money Morning:
  Lack of Panic Suggests More Market Downside to Come - And Buying Opportunities After That
• Money Morning:
  
  A Potential "Big Trade" That Will Put George Soros to Shame
• Money Morning:
  Three Ways to Slash Your Risk Despite the Negative Investing Outlook
• Money Morning:
  The Debt-Ceiling Debacle: Three Investments to Make Before Washington Disfigures Your Portfolio

Keith Fitz-Gerald

About the Author

Browse Keith's articles | View Keith's research services

Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.

… Read full bio