Choosing Between Fears in the Bond Market

Treasury bonds are surely among the safest investments on earth. But nothing is perfectly safe. And in the present environment, Treasury debt looks particularly vulnerable to inflation risk.

In fact, as The Capital Spectator blog pointed out this week: "Not since the early 1980s has the prospect of owning a government bond looked so grim as an income producing security once inflation is considered."

So what are bond investors -- a group traditionally worried about both safety and inflation -- to do? Well, in this environment, players in the debt market may be forced to choose between their worries. Folks who believe the evidence that inflation is rising may want to go with inflation-protected securities like TIPS. Others, who believe that the recent inflationary pressures are likely to ease because of all the other possible catastrophes threatening the market, may want to park their funds in the safety of traditional Treasuries.

What's your biggest fear in this market? And how are you protecting yourself?