The fourth prediction was to avoid all but short-term fixed income investments because interest rates were set to rise significantly. Interest rates continued to defy the bond gurus, as yields fell across the yield curve:
- The five-year Treasury yield fell from 0.89 to 0.62.
- The 10-year yield fell from 1.97 to 1.65.
- The 30-year yield fell from 2.98 to 2.82.
As a result, investors who listened to the forecasts that rates just had to rise have not only missed out on the term premium, but also on the opportunity for significant capital gains. Just as a blind squirrel will occasionally find an acorn, one day a rising rate forecast will turn out to be true. With this incorrect forecast the sure things are now batting .500 -- 1 for 2 with two draws.
Image courtesy of Flickr user 401(K) 2012
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