In many cases, pension funds are buying government bonds because they need fixed income instruments and the near-collapse of the mortgage-backed securities market has eliminated that supply.
Moreover, there is a strong sense that these artificially low rates are just a prelude to a withering bout of inflation that will smack fixed income instruments hard.
In fact, any asset class with risk directly tied to developed economies has generally been forgotten in favor of hard assets or fixed income instruments with negative real rates but an abundance of safety.
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The fact that interest rates are close to all-time lows and investors have piled into low yielding fixed income instruments the last several years, suggests to me that deflation is not a likely outcome.
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The money could go entirely into riskless fixed-income instruments, such as U.S. Treasurys or well-diversified, balanced mutual funds.
Hence most investors flocked to the next best thing: fixed-income instruments such as investment grade bonds, U.S. Treasuries and even high-yielding junk bonds.
These people have tax-free bonds because their net yields are better than taxable fixed-income instruments, also taking into account the financial strength of the issuing entities.
Those that are flocking into low-yielding fixed-income instruments, because they are nervous about volatility, I think are setting themselves up for the worst of both worlds, which is little or negative returns.
Clearly companies like Comcast and GE, are mindful of that reality in an environment where investors look to the equity market for yield due to the paltry rates on many fixed-income instruments like U.S. Treasuries.
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There could be a provision that the mix of equities and fixed-income securities in each account would change over time: As one got older, the portion of funds invested in fixed-income instruments, such as bonds, would increase, thereby reducing stock market exposure.
It certainly makes one question the folks who are advising her, even considering the fact that these days many Generation-Y members have their retirement money parked in super-safe money-market funds and supposedly safe fixed-income instruments, despite a 30-year or greater investment time horizon.
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Harvard and Yale in particular expanded their endowments' investments beyond the traditional bounds of fixed-income and equities and into exotic financial instruments like derivatives, hedge funds and leveraged investment products.
To achieve "attractive" yields in typical yield-bearing instruments (i.e. fixed income) in today's environment, one must generally take on a level of credit risk that essentially shifts the risk profile of that investment more toward the equity spectrum.
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