Gary Shilling: US Bonds Best Bet When Global Recession Hits

Economist Gary Shilling says bonds are still the best investment but he also expects a global recession this year.

“A year ago, we forecast a drop in the yield on the 30-year Treasury bond from the then-4.4 percent to 3 percent,” Shilling wrote said in a note to investors. “The 3 percent yield was indeed reached and even breached in late 2011, providing a splendid 33 percent total return on a 30-year coupon-paying Treasury."

“We’re now predicting a further decline to 2.5 percent, the low reached at the end of 2008 after Lehman’s bankruptcy, because of the similar financial crises in Europe today and the possible spillover to the U.S.”

If Shilling is right, he sees a 10 percent total return this year, and the yield on the 10-year bond falling to 1.5 percent, producing a total return of 5.2 percent this year.

The risk of a new global recession in the coming 12 months has grown due to the continued problems of the eurozone, says Russ Koesterich, global chief investment strategist at IShares, claims there is a 35-to-40 percent chance of the global economy falling into recession over the course of 2012.

Koesterich said 2011 the risk was just 20 percent, fundweb.co.uk reports.

“While U.S. economic data has stabilized, political paralysis in Europe continues to be a major risk factor, threatening not just Europe but also the broader global economy,” says Koesterich.