The%2030-Year%20of%20Living%20Dangerously%20Article

The%2030-Year%20of%20Living%20Dangerously%20Article - Wall...

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Wall Street Journal HEARD ON THE STREET AUGUEST 25, 2010 The 30-Year of Living Dangerously by Richard Barley Not all bonds are created equal. Investors should remember that as they are tempted to push further out the Treasury yield curve in search of higher returns. With two-year yields squeezed to rock-bottom levels and 10-year yields looking anemic, 30-year bonds are moving into investors' sights. Thanks to bond math, this is where the juiciest returns could lie, but also the most risk. The case for 30-year bonds works like this. The average gap between the federal-funds target rate and the 30-year yield is about two percentage points, according to David Rosenberg at Gluskin Sheff. So from current levels at about 3.62%, yields could fall a long way if inflation continues to slow and the Federal Reserve remains on hold. Moving to the average gap would mean returns of about 30%, since 30-year bonds have such a long duration.
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