Sticking With Bonds Will Sap Value
In a letter Buffett wrote in February to shareholders of Omaha, Nebraska-based Berkshire that bonds are “dangerous” assets because low interest rates may not compensate for the risk that purchasing power will be eroded. Treasury 10-year note yields fell to a record low of 1.4387 percent on June 1 amid concern Europe’s two-year debt crisis is worsening and U.S. employment growth is slowing.
Even if you avoid bond funds and buy individual high grade bonds only, bonds are still a bad investment right now. Inflation has averaged 3-4% per year over the past 100 years. The current multi-decade low bond yield won’t even keep up with inflation. This is why Treasury Inflation-Protected bonds (TIP) now have negative yields. If you buy long term high grade bonds today, you have essentially bought a certain loss “investment”.(seekingalpha.com)