Adding A Deflation Hedge With Long Bonds

During the credit crisis, governments around the world cut key interest rates to record lows, in hopes that they would stimulate the economy. However, with the economy continuing to grind in second gear, analysts are predicting that any rate hikes won’t occur until 2011 or 2012. Consumer Price Index measures have been low, demonstrating that the possibility of deflation is quickly becoming more of a concern. With lower rates persisting on the horizon, investors may want to take a look at long bonds over the next few months. The average maturity of the Vanguard Extended Duration Treasury Index ETF EDV is 26 years and currently yields over 4.5 percent. The ETF focuses its attention on Treasury STRIPS. Offering exposure to maturities ranging from 10 to 30 years, the SPDR Barclays Capital Long Term Treasury TLO focuses on publicly issued, U.S. Treasury securities. The ETF yields 4.15 percent. For investors wanting to stay in the corporate world, the Vanguard Long-Term Corp Bond Index ETF VCLT holds investment grade debt with maturities longer than 10 years.