Tags: Jeremy | Siegel | Warns | Bond | Bubble

Jeremy Siegel Warns of Bond Bubble

Wednesday, 18 Aug 2010 10:28 AM

Economist Jeremy Siegel and Wisdom Tree research director Jeremy Schwartz say there's a bubble brewing in the bond market that will cost investors dearly.

"Just as investors were too enthusiastic (in 2000) about the growth prospects in the economy, many investors today are far too pessimistic," they write in The Wall Street Journal.

"If 10-year interest rates, which are now 2.8 percent, rise to 4 percent as they did last spring, bondholders will suffer a capital loss more than three times the current yield," they wrote.

The pair note that the rush into bonds has been so strong that last week the yield on 10-year Treasury Inflation-Protected Securities (TIPS) fell below 1 percent, leaving this bond selling at more than 100 times its projected payout.

“The last time interest rates on Treasury bonds were as low as they are today was in 1955,” Siegel and Schwartz say. “The subsequent 10-year annual return to bonds was 1.9 percent, or just slightly above inflation, and the 30-year annual return was 4.6 percent per year, less than the rate of inflation.”

Siegel and Schwartz believe dividend-paying stocks are the safest bet for investors looking for income and inflation protection.

MarketWatch reports that interest in dividend-oriented ETFs has increased as many investors position for tough times by moving into high-quality companies with solid dividend histories.

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Economist Jeremy Siegel and Wisdom Tree research director Jeremy Schwartz say there's a bubble brewing in the bond market that will cost investors dearly. Just as investors were too enthusiastic (in 2000) about the growth prospects in the economy, many investors today are...
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2010-28-18
Wednesday, 18 Aug 2010 10:28 AM
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