The Wall Street Journal's The Intelligence Investor column writes, "Don't Trip in Your Search for Higher Bond Yields". The Weekend Journal article says, "The Federal Reserve's policy of driving interest rates down toward zero may have kept the financial system alive. But it is killing savers, and driving them to do desperate things. Nearly 78% of taxable money-market funds, the traditional parking place for savings, are offering 0.1% or less in annualized yield, according to Crane Data LLC, a research firm. On a $10,000 balance, that will earn you a maximum of 83 cents -- yes, $0.83 -- in monthly interest income. All told, these funds hold $1.3 trillion that will generate a return of just about zilch for the people who worked so hard to save it. Is it any wonder that investors are barging into bonds?" The piece continues, "At Vanguard Group, more than $51 billion has cascaded into bond funds this year.... Industrywide, investors sank over $40 billion into bond funds in August, an all-time high for a single month, and are on pace to break that record again in September." The Journal quotes Robert Auwaerter, Vanguard's head of fixed-income investing, "It's been like Niagara Falls." It warns, "That mightn't be troubling if investors were merely taking baby steps out of money-market funds, whose three-month average maturities minimize the danger of losses if interest rates rise. Remember, rising rates mean falling bond prices." Finally, it quotes Crane Data president Peter G. Crane, "People feel they have to choose between the frying pan of zero yields and the fire of risk. And they're sick of the frying pan, so they're jumping into the fire."
