Faber: Ditch The U.S. Government Bond Bubble Before It's Burst By Inflation
Vincent Fernando, CFA | Aug. 17, 2010, 10:13 AM | 3,422 | 20
You have successfully emailed the post. As ten-year U.S. government bonds pay just 2.6% interest to their owners, Marc Faber is warning investors to jump ship before it's too late.
U.S. yields have been falling as the prospect of higher interest rates from the U.S. federal reserve has diminished and deflation, rather than inflation, has become Ben Bernanke's prime concern.
But don't count on deflation over the long-haul, given the Fed is actively trying to replace it with inflation:
CNBC:
"I think eventually inflation will accelerate," he said. "Whenever food prices go up, and grains have been very strong recently, with the sum delay, you get inflationary pressures."
10-year treasury yields fell to 2.570%, the weakest level since March 2009. While, the 30-year bond's yield reached 2.719%, the lowest level in 16 months.
Faber cited a weakening U.S. dollar as a second reason to decrease holdings in the country's debt.
"(The) U.S. dollar will weaken, that's the policy of the U.S. government to weaken the dollar in order to cushion the downturn in the American economy."
We have to admit, sitting on the risk of future inflation and dollar depreciation over the next 10 years for just 2.6% yield seems like a horrible bet. Thing is, it seemed like a bad deal back at 3.5% as well, yet government bonds have rallied massively since. China also sold two months ago, and it ended up a horrible trade.
Read more: businessinsider.com |
