Ever since the Federal Reserve cut interest rates to nearly zero in December 2008, investors have been scrounging for yield.
And after the Fed’s decision last week to embark on a third round of quantitative easing (QE), that quest will only grow stronger, experts tell The Wall Street Journal.
That’s because QE3, which includes $40 billion of mortgage security purchases by the Fed each month, is designed to push long-term interest rates even lower.
Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible
And this, in turn, makes Treasurys and investment-grade corporate bonds less attractive to investors. The 10-year Treasury note recently yielded a paltry 1.84 percent.
So, investors have to look at riskier assets to bring in a decent income stream.
"The search for yield is going to go on for longer and may still grow more intense," Rebecca Patterson, chief investment officer at Bessemer Trust, tells The Journal. "Whether we're talking about high dividend stocks, corporate bonds or emerging-market bonds, all those things will continue to find support."
She might have added master limited partnerships (MLPs) and real estate investment trusts (REITs) to the mix.
This is all well and good, as yield is important for many investors. But be careful where you put your money. The thirst for yield has driven many investors into the same assets.
Analysts argue that many utility stocks and some REITs have become overvalued, for example. And the thirst for MLPs has sparked the creation of new ones that may be very risky.
Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible
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