NEW YORK CITY—In his most recent blog post, EthanPenner looks at how compressed yields are forcing themarket into unsteady waters:

"I ask myself, with the 10 year UST yielding 2.6%, andthe after-tax return closer to 1.5%, who in their right mind wouldchoose that return/risk over just holding the cash and earning0%? The marginal gain of 1.5% in yield just is not worth therisk that rates might increase and destroy principal value. Some might say that I'm missing the point here that no taxpayersbuy 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 thatpeople do buy have yields that are all priced off of the UST. So, when you add a normal spread by historical standards to thegimmicked too-low yield of UST, investors are buying onlytrouble."

To read his full analysis, "There Shall Be NoYield," click here. For more postsfrom Ethan Penner, click here.