- Falling stock markets are making many investors choose bonds
- This is possibly the safest type of investment around
- Yields are currently at histroically low rates
US Treasury bonds have been in the news lately, as yields have repeatedly fallen. They are now below 1.3% on the 10-year Treasury note for the first time in history. This is down from the 3% figure just a few months ago. What is happening and what does it mean?
The falling yield on Treasury bonds is down to a few different issues. It has recently broken the record low set in July 2016 and looks like dipping further.
Right now, the coronavirus outbreak is making the headlines and causing financial mischief, but there are also deeper, underlying reasons too. These make us believe that investing in Treasury bonds isn’t just a short-term measure or knee jerk reaction.
For a start, low inflation rates are part of the issue. They are currently below the Federal Reserve’s target of 2%, with no signs of an increase imminent. In fact, it seems more likely that they go down before increasing.
Growth has also stalled, both in the US and pretty much everywhere else in the world. This is due to a number of factors, such as the sluggish global economy and trade wars.
Perhaps most importantly, it is a sign that more people want the safest assets possible. Investors are nervous about the stock markets due to rising global tensions, political tensions and the coronavirus health scare.
At the time of writing, it is reported that over $57 billion has been put into bond funds in the last three weeks alone. The start of 2020 witnessed the biggest influx of money into bonds we have ever seen.
Who Might Be interested Just Now?
These Treasury bonds are incredibly safe and steady. Adding some into a portfolio is a solid long-term strategy for lowering the risk level. Even though the return is generally modest, it is a good place to put some funds in terms of nervous markets.
This is especially true for someone who is close to retirement age or has other, riskier investments. However, it is a sensible move for anyone to do this.
This is a long-term investment, so you can afford to look at the big picture in terms of the economy and other factors. It isn’t a good choice for someone who is looking for a short-term profit.
What Is the Outlook for 2020?
This looks like being a year of economic uncertainty. If you think that all of the factors we have looked at here paint a gloomy picture than buying Treasury bonds makes sense. This is traditionally regarded as being probably the safest type of investment around.
The fact that so many people are doing the same is the sign of fear taking over the market. It is worth noting that the yield curve has changed direction several times in recent months. Some analysts point to this as being a clear sign of an impending period of recession.
So many investors moving into bonds is something that should cause you to think about doing the same. The stock market is incredibly jittery just now and moving into Treasury bonds is one way to protect your assets until confidence begins to grow again.