Treasuries Are No “Safe” Place for Investors

The yield on Treasuries has long been considered risk-free because the likelihood that the government would default is perceived to be extremely low. But what if the actual yield is negative? Would that be considered risk-free? Hardly.

With 10 year Treasuries yielding around 2%, there’s very little room for our cost of living to go up before the actual return on those “risk-free” Treasuries becomes a negative number.

Now, as our dollar continues to weaken, prices are going up on the things we import like gas, computers, cars, and clothes. In fact, prices on all imports have increased 7.1% in the last 12 months according to the Bureau of Labor Statistics. If we look at just fuel imports alone, prices have increased 20.8% during that same time.

While investing in Treasuries doesn’t make much sense for the average investor, Europe’s banks can borrow at a 1% rate from the European Central Bank (ECB) and make a 100% risk-free return by investing in US Treasuries at 2%.

We have long said that the Fed is using these low rates to help fix the economy, while giving little help to those who can ill afford taking on more risk – retirees and those needing income from their portfolios. While we can hope that inflation stays below the 10-year Treasury level, this is no “safe” place for most investors.