Tags: Experts | Treasurys | overvalued | decline

Some Say Treasurys Overvalued, Headed for Decline

By Dan Weil   |   Sunday, 24 Jun 2012 03:16 PM

The explosive rally in Treasurys that sent the 10-year yield to a record low of 1.44 percent this month is well overdone, many experts say.

Indeed, the 10-year yield already has bounced back to 1.67 percent, and a lot of market participants expect it to rise further.

"Market forces have pushed yield to levels that can't be justified by the economy," Cyril Castelli, CEO of research firm Rcube, tells The New York Times. "It's hard to believe they can stay at these levels."

Fears about Europe’s financial crisis and the U.S. economic slowdown produced the surge in Treasurys. But many experts anticipate Europe will muddle through the hard times without a meltdown.

And while U.S. economic growth has slowed, it still registered 1.9 percent in the first quarter. The Federal Reserve predicts an expansion of 1.9 percent to 2.4 percent for the year as a whole.

That’s not to say Treasury yields will suddenly surge higher. What’s going on in Europe and the United States is likely strong enough to prevent that.

But it does suggest that investors should be looking at alternatives to Treasurys for safe, income-producing investments.

If you want to stick with bonds, you can go for triple-A corporates. The composite rate for 10-year bonds in that sector totals 3.75 percent, according to ValuBond.

You can also opt for blue-chip dividend stocks that provide yields well over 3 percent and can potentially offer capital gains, too.

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