[dorlomin]

Are US 10 year trearuary notes far too low in the yeild? From what I can see there is a reasonable risk of both dollar depreciation and of inflation, given they yeald at under 4% and the not non existant risk that the Federal Goverment wont have $700 billion to pay back in ten years does anyone else think there not really worth the risk?

(I am not a trader just curious why the government can buy such cheap debt).

[MrBill]

Ironically, it is a flight to safety. Capital preservation looks pretty attractive - even at yields below 4% - when stock markets are tumbling 10-20% or more. These are not long-term investments, but parking money in the 10yUST until buying opportunities in other asset prices emerge. For instance financial stocks that have been beaten down 50% or more. The alternative is cash. Time deposits are also attractive, safe alternatives right now.

The reality is that we live in the here and now. Money has to be invested somewhere even if that somewhere is in cash stuffed under your mattress. And as all assets can go up and down in value there is no such thing as a safe investment. Even if one shorts stock indices that is still a directional bet.

After the dot com blow-up the 10yUST was the place to be as central banks slashed rates. You're right, there is currency risk, but the chances are that the UK and EU will follow the US slowdown with Asia also suffering from a slowdown in global growth. This will mitigate US dollar weakness and the attractiveness of currency alternatives. Even gold can and does go down in both in nominal and in absolute price terms.

In times like these capital preservation trumps yield pick-up. A low risk, well-diversified portfolio is where you want to be for the next 12-18 months. That may include gold and government bonds, but I would want some cash in various currencies as well. A smart cock hedges his bets by visiting many chicken coops! ; - )

[dorlomin]

Cheers for the explanation.

[joeltrout]

Another option is muni-bond funds through companies like Vanguard or Fidelity.

Certain funds are tax free, both state and federal, such as California or New Jersey funds from Vanguard. They usually have a yield slightly higher than the 10 yr treasury and are completly tax-free.

Certain requirements such as minimum amount in the fund do apply. check out vanguard.com site for more info.

joeltrout