Investors ought to have no more than 15 percent to 20 percent of Treasurys in their portfolio, a Morgan Stanley banker told CNBC Monday.
With the ongoing uncertainty about the economy, investors have sought the safe haven of bonds.
Year to date, they have poured some $186 billion into the bond market, according to ICI, Investment Company Institute.
By some estimates, investors have packed their portfolios with some 70 percent to 75 percent in Treasurys.
"The last decade has been a"
“I would argue that for Treasury bonds, you ought to have no more than 15 to 20 percent in your portfolio,” said Jim Caron, head of interest rate strategy at Morgan Stanley and former head of Merrill Lynch’s US Interest Rate Strategy Group.
Caron said that yields on Treasury bonds are now hovering near a 17-month low, and that it would take a major inflation scare to move yields up again. Last week the Federal Reserve pledged to continue to buy up Treasurys.
He said that yields on 10-year Treasury could drop another 50 basis points, which would result in about a 14.5 percent year-to-date return. A basis point is used to calculate shifts in interest rate, equity indexes and the yield of a fixed-income security.
"Typically, bonds don’t return as well as equities do, although," he added, "in the last 10 years that hasn’t been the case.”
The last decade, he said, has been a “perfect storm for bonds,” in which investors have been able to ride the higher yields from the beginning of the century down to the lower yields now.
The favorable period for bond investors, he added, was due to low inflation rates and significant buying from foreign accounts, particularly China.
To learn more about bond investing, watch the "Bond Bets" special segment Tuesday, August 17 on Street Signs, 2pm ET.