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Rivelle on the Risks of Government Securities

Metropolitan West CIO and manager Tad Rivelle says there is a conceptual trap to assuming high quality equals low risk.

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Michael Herbst: You've also written in recent commentary that some of the government's efforts to revitalize pockets of the market that were particularly hard hit in '08 could actually pose dangers or risks to governmental securities, including U.S. Treasuries or even TIPS at this point. Could you comment on some of the risks that investors should be considering regarding government securities right now?

Tad Rivelle: Well the dilemma that we face as a society and our policymakers face is how do you respond to an economic crisis of the scale that we have experienced, an economic crisis that we haven't seen since the Great Depression, and respond to it so robustly that you reduce, collectively, the chance of a depression, which is effectively what we were beginning to see shades of last fall and in the first couple of months of this year? How do you reduce the risk of depression to be so small, so de minimis, that you do not, in the process, almost by the very nature of your response overdo it and end up with not only reflation, which we do think we are going to experience, but some measure of inflation?

Michael Herbst does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.