Tags: Treasury | risk | asset | stocks

European Woes Could Make US Bonds a Great Investment

By    |   Friday, 08 Aug 2014 07:59 AM

At any given time, professional investors try to buy assets that are the least likely to fall. They will look at stocks and bonds as alternatives, for example, and select the one that offers the least risk. This process is the same in bull markets and bear markets. At times when everything seems to be falling, investors search for the investment that looks like it will fall the least.

In the current market environment, where every possible investment seems to carry high risk, the least bad asset class is probably U.S. Treasurys.

Treasurys are partly attractive because the rest of the world faces steep hurdles to growth. Europe faces financial stress, as new bank regulations become effective later this year and banks continue to struggle. This stress can be seen in the euro, which has been trending lower in the past five months. Investors selling euros will often be buying dollars, and holders of dollars will usually put their money to work through Treasurys.

This scenario explains why interest rates can continue to fall as the Federal Reserve tapers its monetary stimulus and inflationary pressures rise. Demand for Treasurys is pushing rates down.

Treasurys are offering just small returns but investors like the fact that they are offering positive returns for now. European stocks and bonds, Asian markets and U.S. stocks carry greater risks than do Treasurys in the current market environment. That makes Treasurys the best buy.

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At any given time, professional investors try to buy assets that are the least likely to fall.
Treasury, risk, asset, stocks
Friday, 08 Aug 2014 07:59 AM
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