With interest rates at record low levels and sovereign debt issues proliferating, investors have been placing their savings in two "safe" assets: U.S. treasuries and precious metals, buying up exchange-traded funds (ETFs) like the iShares Barclays 20-year Treasuries (NYSE:TLT), SPDR Gold Trust (NYSE:GLD), and iShares Silver Trust (NYSE:SLV).
After a big run-up, however, these two assets may be the riskiest rather than the safest investments. Take the 10-year U.S. treasuries, for instance, which trade 20 percent above par, at a historically low yield of near 2%. Investors seem to ignore America’s high debt-to-GDP ratio, and the two credit agency downgrades that should have added a risk premium in this asset class. Actually, there is a big inconsistency here. Investors sell European bonds when American credit agencies downgrade the debt of the region, but they end up buying American bonds when the same agencies downgrade U.S. debt. Investors further ignore the fact that many European countries have already taken measures to bring their government finances in order, while the U.S. is still deliberating within super committees. . . View Full Article
