People are already wary of what potentional defaults will do to the municipal bond market. Now it seems that US treasuries are in for some trouble of their own. Day-to-day volatility has many investors questioning what will happen to treasury yields going forward and how inflation will affect the market.
The recent uprising in Egypt is partly to blame. Investors often turn to US treasuries during times of political instability abroad, which naturally results in lower yields as bond prices rise. But with fears of inflation looming, especially in energy prices, the now even lower yield on treasuries has many investors questioning whether they want their money tied up in bonds right now.
The other culprits? Unemployment, quantitative easing, and government selling.
Thankfully, most investors seem to have their wits about them and are not running in fear from the bond market. Short-term volatility can be unsettling, but when you look at the 10-year yield over the past month, it has barely moved, hovering around the 3.5% mark. The real issue, then, is not when yields will stabilize, but when we will move out of the 3.25% - 3.5% range.
-The Finance Whisperer