NEW YORK CITY—In his most recent blog post, Ethan Penner looks at how compressed yields are forcing the market into unsteady waters:

"I ask myself, with the 10 year UST yielding 2.6%, and the after-tax return closer to 1.5%, who in their right mind would choose that return/risk over just holding the cash and earning 0%? The marginal gain of 1.5% in yield just is not worth the risk that rates might increase and destroy principal value. Some might say that I'm missing the point here that no taxpayers buy this bond; only the Fed, their bank clients, and sovereigns, none of whom have any real choice. This might be true, however, the rub is that the rest of the financial instruments that people do buy have yields that are all priced off of the UST. So, when you add a normal spread by historical standards to the gimmicked too-low yield of UST, investors are buying only trouble."

To read his full analysis, "There Shall Be No Yield," click here. For more posts from Ethan Penner, click here.