Why U.S. Treasuries are the 'cleanest dirty shirt'

SEP 05, 2012
Investors will be in search of the “cleanest dirty shirt” in the pile of alternatives among industrial nations. For this reason, I believe U.S. Treasuries will be selected from the pile as the “least risky” of investment options. While I expect foreign and domestic financial institution demand for Treasury securities will be strong in the coming months, greater value may be found in mortgage securities and other credit securities including municipal bonds. Increasing regulatory requirements on bank investors may cause some institutions to shy away from credit related investments, which may allow the bonds to cheapen from very rich levels. Ironically, banks that have developed and implemented appropriate policies regarding corporate bonds and other credit sensitive securities will benefit from their purchases which will alleviate some of the pain of shrinking margins. Until Europe develops a banking union which offers Euro-wide deposit insurance, global markets will be volatile and equity prices will trend lower along with U.S. bond yields. I believe the Fed will develop and implement policies that focus on liquidity and low interest rates at the September or October meeting of the Federal Open Market Committee. These policies include expanding the balance sheet further by purchasing between $400 and $600 billion in mortgage securities (MBS) and longer maturity Treasuries (7+ years). The year 2012 may be remembered as the year the cracks in the economies around the world grew and in the case of the EU and U.S, the cracks may become fissures if appropriate policy changes are not developed and implemented. Will we fall off a “fiscal cliff?” At best, we can hope for an extension of the programs through 2013. Sharon Lee Stark is the managing director and chief market strategist for Sterne Agee.

Latest News

Advisor moves: Wells Fargo FiNet lands $580M Ameriprise team
Advisor moves: Wells Fargo FiNet lands $580M Ameriprise team

LPL Financial and Raymond James also add independent advisors from Osaic and Edward Jones in Michigan and Arizona.

M1 Advisor bets AI can serve clients wealth managers turn away
M1 Advisor bets AI can serve clients wealth managers turn away

The SEC-registered RIA advises on more than $1 billion in client assets, with no advisory fee through 2027 and no human financial advisors.

Wirehouses losing more advisors so far in 2026: Report
Wirehouses losing more advisors so far in 2026: Report

The four wirehouse firms lost 1,449 experienced advisors and recruited 932 in the first six months of the year, according to Diamond Consultants.

RIA moves: Merit, Hightower and Trilogy announce billion-dollar additions
RIA moves: Merit, Hightower and Trilogy announce billion-dollar additions

Merit's 10th Commonwealth addition deepens its Western New York reach, while another Hightower partner joins its Signature Wealth platform in Michigan.

SEC spares fund giants charges but warns on Exxon climate campaign
SEC spares fund giants charges but warns on Exxon climate campaign

Report on Climate Action 100+ signals risk for passive managers' 13G status heading into the 2027 proxy season.

SPONSORED Built on insurance experience to deliver on long-term promises

Knighthead Life entered the market with a competitive MYGA. A strong launch earned advisor confidence and paved the way for FIAs.

SPONSORED In the Age of AI, Trust Becomes the Advisor's Greatest Asset

As AI makes financial information more accessible than ever, Lana Hock explains why human judgment, trust, and empathy remain the qualities clients value most in a financial advisor