Last Tuesday on Bloomberg Alan Greenspan the Former Fed Chairman for many years said, “There is NO barrier for U.S. Treasury yields going below zero.” And he said rates being below zero “is not a big deal.” WOW! It was amazing to hear Greenspan to say this.
So, what does this mean? First, when an incredibly influential economist says this the reality of this happening greatly increases as Greenspan has just given cover to the current Fed to keep dropping rates. And I expect mortgage rates will continue to drop as well, but at a slower pace than Treasuries.
Second, government bonds are now being used as “money hotels” I read in an article, or places to store money, and not as a tool to make money. Third, this is going to be very difficult on retirees as safe havens for their money like U.S. Treasuries may no longer pay any interest. Thus, retirees have 5 choices—
- Invest in riskier assets like stocks, corporate bonds, REITs, gold, etc.
- Save more money as their withdrawal rate will probably have to drop from 3.50% to 4% to below 3%.
- Retire later in life.
- Take smaller distributions in retirement.
- Or consider investing in investment grade real estate.