How do $35 billion worth of “safe” US retirement assets suddenly go up in smoke? Very simple, all it would take is a one hundred basis point rise in the 10-year Treasury bond’s interest rate. That ain’t much. And yet the money continues to flow in from a generation who’ve been taught for decades that bonds were a risk-free haven.
I talked about this potentially dangerous situation in my highly controversial piece from October: 33 Times, You Poor Dumb Bastards. Now of course, the term “bond bubble” has been in popular use for almost three years now – everyone sees it but no one’s been right about predicting the bust. And history tells us that lots of people get burned on the way to the actual bust itself. There’s also the Japanese possibility where rates drop and bonds remain aloft for decades (which I don’t buy).
No, I believe the true risk to our nations retirees (and aspiring retirees) is the eventual reckoning of rising rates and what they can do to the unsuspecting portfolio’s so-called safe principle.
This morning Jonathon Trugman gets even more specific about this bedrock risk in the nation’s retirement asset complex (emphasis mine):
There goes the nest egg.
There’s a record $16.3 trillion of US debt sitting in baby boomers’ portfolios like a ticking time bomb ready to explode, and most investors know little about it.
“It’s my worst nightmare,” says a long-only bond fund manager. “There’s nothing I can do — the checks come in [from clients] every day, and I have to invest it.”