Exchange traded funds that invest in Treasuries rose Wednesday as investors looked for safety in bonds while stocks weakened along with commodities.
Yet Treasury bonds and related ETFs could be slowly losing value as U.S. debt levels surge to new heights and inflation eats away at wealth, some high-profile investors say.
Bill Gross, PIMCO’s bond guru, in his latest update remarks that there are many causes for concern in our current economic environment: The global imbalances in trade, finance and currencies. High private and sovereign debt levels. A widening gap in wealth between the rich and poor. An aging population.
However, Gross believes that low rates coupled with rising inflation represent the most immediate threat to investor portfolios. Investors are essentially losing money when their assets provide yields less than inflation. [Treasury ETFs Down Before Fed; PIMCO Blasts Bond Buying.]
In the academic working paper, titled “The Liquidation of Government Debt,” Carmen Reinhart and M. Belen Sbrancia argue that bond prices don’t need to go down for investors to be “skunked,” or financially repressed, during a process of “debt liquidation.” Currently, the U.S. Treasuries and the bond market are in a sense being “repressed” or yields are being “capped,” and investors are losing out.
PIMCO advises investors to diversify bond holdings into foreign sovereign debt, including developing or emerging market debt that have higher yields, which also provide exposure to non-dollar currencies. A lot of countries out there have healthier balance sheets and higher real interest rates than some developed markets.
For more information on Treasuries, visit our Treasury bonds category.
- iShares Barclays 20+ Year Treasury Bond Fund (NYSEArca: TLT)
- iShares Barclays 10-20 Year Treasury Bond Fund (NYSEArca: TLH)
- Vanguard Extended Duration Treasury ETF (NYSEArca: EDV)
- SPDR Barclays Capital Long Term Treasury ETF (NYSEArca: TLO)
iShares Barclays 20+ Year Treasury Bond Fund
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.