But now, money is flowing out of government bonds and into riskier assets once again, meaning yields are going back up. The yield on 10-year Treasury notes has nearly DOUBLED just since December.

The problem is what those higher yields do to the underlying face value of your bond—the bond price goes down. In fact, the benchmark 30-year U.S. Treasury bond has tumbled over 10 percent since April.  The price of long-term government bonds has already plunged more quickly than at any time in history. The Treasury bond market is crumbling and looks like it will for some time to come!  Scary as it may sound; perhaps someday the government will be unable to sell its long-term notes and bonds at ANY price.

Most non-political types would say the federal government’s increased spending and interest rates are the reason. Federal borrowing has soared to unbelievable levels. Nearly $100 billion in bonds, notes, and bills are being offered at each weekly Treasury auction — the most in our nation’s history. Interest rates are rising.   None of that money is going into the housing industry to provide mortgages and re-stabilize the real estate market.  It’s all going into subsidizing federal spending.

If I were, saying, over 55 years old and thinking about long-term retirement income, and did so almost exclusively in Treasury Bonds, I’d be terrified at the thought of my wealth evaporating so quickly.  You figured you could settle for low yields in exchange for no volatility.  Steady, albeit low income—you thought—would work, as long as it was “safe”.  And what could be safer than investing in the US government, you thought. But now you can’t even count on your portfolio of US treasury bonds to hold its value either?

Unfortunately, in my opinion, NO.   You can’t.

Please re-think your portfolio and how it will be affected by this new paradigm of high government spending and higher interest rates.  Consider re-allocating it to smarter, more profitable, and more worthy causes.

As I write in mid 2009, the US mortgage industry has nearly shut down.  Most good people are unable to get a mortgage, no matter what you hear on the news.  It’s as simple as that.  Surely you have a niece, cousin, brother-in-law, co-worker, or friend who can attest to their inability to qualify for a mortgage to buy a new house.

Consider an investment in something that provides a much more secure fixed income, such as a real estate Note, secured by somebody’s home.  And in the process you’ll make much higher income than with those traditional investments such as treasury bonds.

Related posts:

1. MORE SIGNS OF UPCOMING DECLINES IN TREASURY AND SAVINGS BONDS
2. UPDATE: ACHIEVING HIGHER YIELDS WITHOUT EXCESSIVE RISK
3. The High Yield Great Lakes Secured Income Investments