Despite all the economic problems America has faced recently, investors still believe in the long-term prospects for the United States. The latest evidence: Long-term Treasury bond funds are headed for the top spot among all mutual funds for 2011. These funds, which generally hold Treasury bonds with maturities of 20 years or more, have an average return of 32 percent on the year so far, according to Morningstar.
Among Morningstar's 86 different fund categories, the runners-up on the year are also bond funds. In second place are funds holding primarily inflation-protected U.S. Treasurys, which are up an average of 11.5 percent, followed by funds holding long-term California muni bonds, up 11.1 percent.
U.S. Treasury bonds were in great demand this year, as investors fled the European situation in search of a safe haven, and the Federal Reserve bought up $600 billion worth of them as part of its quantitative easing program. This was also the year, ironically, when Standard & Poor's downgraded the creditworthiness of the United States, supposedly signaling to investors that the U.S. was not so safe a haven after all. Clearly, investors have decided that S&P was wrong.
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