Is Your Portfolio Drowning in Treasury Bonds?http://www.fool.com/investing/etf/2011/07/18/is-your-portfolio-drowning-in-treasury-bonds.aspx Amanda B. Kish, CFA
July 18, 2011
As the negotiations in Washington over raising the debt ceiling heat up, investors are left to ponder what was once unthinkable: Could the U.S. actually default? Such a scenario would almost certainly have a devastating effect on our economy, sending interest rates soaring and the stock market tumbling down. But there's another layer of worry here: Excessive government borrowing has flooded the bond market with Treasury securities. That means investors could be even more heavily exposed to this corner of the market than they realize.
A growing presence
So should bond investors be fretting about their exposure to Treasury bonds? Well, in general, I think investors should at least be cognizant that bonds of all stripes aren't likely to continue providing the same kind of powerhouse returns that they have in years past. Interest rates are almost certainly headed up in the next year or so, which means bond prices will fall in response. With all the money that flowed out of the stock market and into bonds in recent years, a lot of investors are sitting on an asset class that probably has many of its best days behind it. But whether you should be worried more specifically about your exposure to Treasury bonds depends on where you are in your investing journey.
Time on your side
However, if you're still worried about how a potential rout in Treasury bonds could affect your portfolio, check out how your bond funds are invested. Many popular diversified bond ETFs are even more heavily invested in Treasury bonds than the index. For example, Vanguard Total Bond Market ETF (NYSE: BND ) has a 36% allocation to Treasury bonds, while Vanguard Intermediate-Term Bond ETF (NYSE: BIV ) has a whopping 52% exposure to Treasuries. If you're uncomfortable with exposure like this, even if bonds are a small portion of your overall allocation, you may want to think about adding a fund with more of a