10-Year Treasury Note Yield

The 10-Year note is putting in an outside reversal this week, which may mark a significant high in price (or a significant low in yield; remember that bond prices and yields are inverted... falling prices = rising yields, and vice-versa.) If you are buying these bonds looking to hold on a few years, chances are good you're going to lose money.

Take the current yield of 3.34%, subtract federal and state taxes which knock the yield down to less than 2%. Then deduct inflation of 3%, which the Fed is trying mightily to achieve, and you're left with an after-tax negative real return.

Eventually the Fed will turn around and begin to raise rates to battle the inflation they created, and bondholders will get hit with large capital losses, further increasing their suffering. This is why the wags are saying that T-Bonds represent "return-free risk" instead of "risk-free return."

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