Low Rates Lure Yield Seekers Onto Thin Ice

Some investors are pursuing the safety of federally insured deposits. Others are dissatisfied with low nominal and negative real returns and are moving further out on the risk spectrum in their zeal for yield, regardless of whether they understand the additional risk they are incurring.

In a speech at Jackson Hole, Wyoming, in late August, Federal Reserve Chairman Ben Bernanke acknowledged this possible consequence of his policies. There are concerns that by pushing longer-term yields lower, the central bank’s “nontraditional policies,” namely quantitative easing, “could induce an imprudent reach for yield by some investors and thereby threaten financial stability,” he said. Yet he dismissed this threat, saying, “We have seen little evidence thus far of unsafe