Investors Are Bearish on Bonds

William H. Gross has dumped all Treasuries from the world's biggest mutual fund. Warren Buffett is shifting to shorter-term debt. Other bond market investors are moving money to non-U.S. bonds, real estate, commodities, and even a wind farm in Brazil as they prepare for an end to the three-decade rally in Treasury securities. "U.S. government bonds are not a safe haven," says Jim Rogers, the global investor who correctly predicted the start of the commodity rally in 1999.

The worry is that unprecedented spending by the U.S. government and the Federal Reserve will inevitably cause interest rates to rise, reducing the value of existing Treasury securities. (Bond prices fall when interest rates rise and increase when rates drop.) That would mark the end of a Treasury bull market that began in the early 1980s, after Fed Chairman Paul Volcker raised interest rates to as high as 20 percent to tame inflation. In the years that followed, inflation and interest rates declined, pushing up bond prices. The 10-year Treasury yield, which reached a high of 15.8 percent in September 1981, fell to as low as 2.05 percent on Dec. 30, 2008. That yield has risen to 3.36 percent as of Mar. 14.