As a tepid economic recovery and a faltering European credit situation sustained fears of a double dip U.S. recession and roiled financial markets in 2011, investors did what they always do – flee to safety. But the usual flight paths had hitches. Seeking refuge in the traditional “safe harbor” of Treasury securities meant foregoing any real return on savings. Ditto money markets. Certificates of deposit offered only marginally better returns. Going long on high quality corporate bonds could give a relatively acceptable yield, but the continuing inability of Congress to tackle the deficit and mounting federal debt suggested considerable risk of future inflation and erosion of purchasing power of bond principal.
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