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Future returns on bonds may be disappointing


U.S. Treasury yields hit their lowest levels in U.S. history in recent weeks. The yield on a 10-year Treasury security hit a new low of 1.32% a few weeks ago (it has since increased to 1.56%). That was the lowest rate on such bonds in 227 years. Even at that rate Treasuries are “high yield” relative to some other major government bonds. In the United Kingdom the rate recently was just 0.8%, while yields on 10-year German and Japanese bonds are negative. Negative yields mean that buyers are paying the bond issuers in order to hold their bonds! The rates on corporate and municipal bonds have also declined along with long-term government bonds. The Federal Reserve – which raised short-term rates from zero to 0.25% last December – has been stymied in its campaign to keep raising rates by events such as Britain’s recent vote to exit the European Union. The New York...

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