People Fleeing Treasury Investments

In the panic to avoid losses in riskier investments, many investors fled into the treasury market only to find that the Barclay Treasury index on 20-plus year investments have returned -20% in 2009. When investing the stock market is seen as risky, the conventional wisdom is to go to government backed bonds. However, now that the economy is on the mend and higher yields are expected elsewhere there is a rush to sell these bonds.

Long-Term Bonds Uncertain

Treasury bonds start at maturity rates of 10 years and up. The initial investment is low, only a $1,000 minimum, and many of the investors belong to the average U.S. household. In fact, $609 billion were held in total by U.S. Households as of September, 2009. Next to this demographic are foreign buyers of treasuries. China has at least $800 billion invested in U.S. treasuries right now. The larger declines are occurring with the 20-plus year bonds, but nevertheless, as a safe investment that rarely lose money, treasuries are starting to lose their luster. This situation may be temporary as the economy adjusts.

This May Be Good News For Some

The positives about the economic situation are building confidence that the economy may indeed be on the mend, provoking many to abandon treasuries in favor of other investment choices. If you’re not trying to sell in 2010, you probably won’t be upset at this turn of events in the treasury market, as it offers some reassurance that higher yields are available elsewhere for the investor. Hold on to see what happens. If the stock market weakens again, it is likely that investors will flock back to treasuries as the common sense investment vehicle to earn some interest while avoiding state and local taxes.