I Sold My Treasury Bonds

I have sold all of my Treasury bonds this week. Anticipating a decline in Treasury yields, I bought them in 2006 (before the financial trouble started), so I have made a nice gain – almost a 15% annual return. Not bad for a 5% coupon investment!

Motivated by fear, many people had moved their money to the safety of Treasury bonds during the last year or so. This has driven the prices up and the yields down (from 5.25% to about 3.5%). I believe that the worst of the financial panic/fear is behind us now. As such, I think people will start to sell their treasury bonds and the yields will rise.

I expect the economy to continue to struggle for a while - especially during the second quarter of 2008. Unemployment should rise to at least 5.5% and possibly 6.0% before things get better.

Housing will not recover this year. Construction and new home sales will remain slow, and housing prices will continue to decline. I expect the recent rally in homebuilder stocks to reverse itself as the spring sales of new homes disappoints the optimists who bought the stocks.

No need to be a hero. I continue to wait - with half my assets in cash.