Long-term government bonds have gained 11.5 percent a year on average over the past three decades, beating the 10.8 percent increase in the S&P 500, said Jim Bianco, president of Bianco Research in Chicago.
The combination of a core U.S. inflation rate that has averaged 1.5 percent this year, the Federal Reserve’s decision to keep its target interest rate for overnight loans between banks near zero through 2013, slower economic growth and the highest savings rate since the global credit crisis have made bonds the best assets to own this year.
Does this mean we should all rush out and buy 10-year Treasury Notes yielding less than 2.20 percent? I think not. The potential for further capital gains from lower yields is far outweighed by the risk of capital losses from future rate rises. And there are plenty of low-to-medium risk alternatives that will perform better than 2.20 percent.