A couple of days ago, someone on Twitter asked me a question about long-term bonds and why good ones are so hard to find. And the answer was a bit longer than the 140 characters we are allowed there, so instead of tweeting a series of 10 tweets and annoying a lot of people, I decided to post it here:

Q:  As a financial advisor you must be able to tell me why it is so hard to find good bonds for the long term.

A:  The primary reason it will be difficult to find “good” US bonds in the future is because we are in a low but rising interest rate environment.  As rates rise, the value of bonds decline.  In what will be a secular bond bear market over the next few years, you should stay with low duration paper; I would try to stay in the 7 year range with notes or commercial paper and absolutely go no further out than 10 years on the yield curve.  I would look for certain sovereign paper such as Canadian, Singaporean, Honk Kong, New Zealand or perhaps Swiss paper.  Definitely stay away from UK, French, Spanish, Italian paper and above all, US and Japanese.

Trying to obtain “good” US bonds will be impossible as the US government is inflating the dollar (and therefore its bond market) out of existence.  You should stay out of the US bond market.  It’s already down 27% for the year and will head much lower.  More than likely the US dollar will no longer even be the reserve currency in 5 years.

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