Knowing the Down Side of Treasury Bonds Is Essential

Treasuries can still play a meaningful role in a diversified portfolio, but this article does a good job of quantifying the risks in a way most owners of treasuries don’t fully understand.

How’s this for an investment opportunity: a guaranteed yield of 3.27 percent, with an enormous potential downside. As risky as that sounds, millions of investors are moving money into Treasury bonds as a “safe haven.” In early September, the yield on the 30-year Treasury bond sank to a new low of 3.27 percent, while the 10-year note fell to 1.9 percent. If the inflation rate stays anywhere close to its current modest 3.6 percent pace, long-term investors will be guaranteed to lose money after factoring in inflation’s toll. And that’s only scratching the surface of the risks. …