Artificially low interest rates are a subtle form of debt restructuring and represent a kind of invisible taxation. Today, the 10-year U.S. Treasury bond yields 2%, which is below the current 3.5% headline (Consumer Price Index) rate of inflation. Even if inflation over the next decade averages 2%, which is the Federal Reserve's informal target, investors will find that they will have earned a zero real rate of return. If inflation accelerates, the rate of return will be negative.
~ Burton Malkiel, from The Bond Buyer's Dilemma
Grouch: I couldn't agree with Dr. Malkiel more. The odds of inflation equaling or exceeding 2% over the next 10 years are pretty high. Treasuries are a very unappealing investment at the moment. I am staying away from Treasuries in my portfolio.
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