Interest rates have to start rising again soon, and while higher rates are generally good for people looking to put new money to work in the bond market, those who already own bonds could take a bath on their supposedly "safe" investments.
About a month ago, the Germany government sold $5 billion worth of Eurobonds that paid an average interest rate of -- get this -- negative 0.0122%. That's right: These bonds are guaranteed to lose value. So why did they sell? In a word, it's all about risk.
The odds that the U.S. will default on its debt increase each day, and even if a short-term deal is reached, the ratings agencies may downgrade U.S. debt anyway. If that happens, turmoil could roil the markets. So where can the smart money flee for safety? 24/7 Wall St. offers 10 safe options.
Even the phrase "debt ceiling" sounds like something too far removed from daily life to be of much interest. But ignoring the political battle over this issue would be a mistake: How the government handles the nation's debt limit will directly affect our personal finances in all sorts of important ways.
After respected banking analyst Meredith Whitney rattled the municipal bond market with her prediction of hundreds of billions of dollars in muni defaults, small investors dumped the bonds. That dire prediction may yet come true, but there are a few types of munis that still carry virtually no risk.
The technical signs suggest we're at a crucial point for stocks: Either a decisive rise or a dramatic fall is coming. And if you're the type to dismiss technical analysis as unscientific voodoo, you're missing the point: It's not about pattern matching, it's about human psychology.
The Treasury has to find buyers for trillions of dollars in new bonds needed to fund the federal deficit. It hopes average citizens will pony up and invest in some $337 billion worth. But for a host of reasons, "safe" T-bonds might not be a winning investment for you.
The climbing yield on the 10-year Treasury note -- now 3.70%, a nine-month high -- can mean bad things for economic growth and stock prices. But not yet, if market guru Jeffrey Kleintop is right. He says the 10-year Treasury needs to be higher than 5% before it hurts stocks.
Washington has been borrowing Social Security's surpluses for decades and issuing IOUs in return. However, the ability to pay those IOUs depends on the Treasury borrowing more money on global bond markets at affordable rates. That's hardly a sure thing.
Doomsayers insist the recent rapid rise in yields means the nation's creditors are finally getting fed up with financing U.S. deficits. But a stronger argument says the cause is better-than-expected economic reports that have been piling up recently.
It's no secret that stock investors have suffered through roller-coaster volatility this year for little or no return, while bond investors have been having a ball. The longest-dated Treasury mutual funds have returned nearly 20%. Stocks, meanwhile, have done zilch.
Stocks are underperforming so far in 2010, and Treasury bond yields are low, too. So how can you get good returns without excessive volatility? Standard & Poor's Equity Research suggests mixed-asset mutual funds, which capture the strengths of both stocks and bonds.
Stocks posted big gains Friday, with the Dow Jones Industrial Average rising 1.7%, after Federal Reserve Chairman Ben Bernanke assured the nation that the Fed is ready to step in.
