Should You Buy Treasuries?

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In January I wrote an article in which I argued that investors should consider owning U. S. Treasury bonds as a trade. I emphasized that I understood the long-term bearish case that interest rates are way too low and that an ever-increasing supply of government debt would inevitably put pressure on prices. Nevertheless, Treasuries closed 2013 at a low point.

Furthermore, sentiment was awful. It seemed that no matter what position you held, it followed that you had to be bearish on government bonds. If you felt the economy was improving, then investors were supposed to take their money out of bonds and put them into stocks. If you felt that the economy was weakening, then government debt was becoming too large and interest rates would rise as global investors sold their bonds as they questioned America’s ability to pay back its loans. With everybody on one side of the trade, it seemed to me that taking the other side was a no-brainer.

This turned out to be correct. So far this year, stocks have been a disappointment whereas Treasuries have performed very well. While I am less bullish on Treasuries now than I was in January, I still see a lot of potential in bonds and related exchange-traded funds.

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