Buffett Cautions Against Buying Long Term USD Bonds

Us treasury yield hit a incredibly low level years ago and they have continued to fall further. Granted this is mainly due to the bailout of the economy necessitated by the politicians favors to the too-big-too-fail financial institutions that have given those politicians so much cash over the years.

Chart showing corporate and government bond yields from 2005-2010 by Curious Cat Investing Economics Blog, Creative Commons Attribution, data from the Federal Reserve. Bond yields have dropped even lower over the last 6 months, dramatically so for treasury bonds.

Fed to start buying T-bonds today, hoping to move rates

European government debt has been sold at negative interest rates recently. The United States Treasury has now come as close to that as possible with 0% 3 month T-bills in the latest auction. The incredible policies that have created such loose credit has the world so flooded with money searching for somewhere to go that 0% is seen as attractive. This excess cash is dangerous. It is a condition that makes bubbles inflate.

MUMBAI: There is an eerie silence in the government bond market as things have slowed down. And, a gain in prices is not a given even if the central bank lowers rates. The question now is who would absorb the flood of bond supply that is expected to hit the market? Foreign funds have nearly used up the $30-billion investment limit set for them in government bonds. Traditionally, banks, insurers and provident funds have been the buyers, but their appetite, too, is likely to be less this time.

My preference is for a lower use of bonds than the normal portfolio balancing strategies use. I just find the risks greater than the benefits. This preference increases as yields decline. Given the historically low interest rates we have been experiencing the last few years (and low yields even for close to a decade) I really believe bonds are not a good investment. Now for someone approaching or in retirement I do think some bonds are probably wise to balance the portfolio (or CDs). But I would limit maturities/duration to 2 or 3 years.

MyPlanIQ submits:Last week painted a mixed picture for the fixed income market, with high yields and international inflation protected bonds again claiming the top two spots in our trend table. Long term government bonds and munis lagged the broader market. We think two major themes—durational risks of long term government bonds, inflation pressures in emerging markets—are in focus and would offer investors insights on how to navigate the bond market.

MyPlanIQ submits:Bond markets have been in a slump. Various bond ETFs stabilized a bit in the past quiet week. By examining the following trend score table for bond ETFs that represent various fixed income subclasses, one can gain some insights into the current fixed income world: