Emerging-Market Bonds Are Closer to 'Risk-Free' Than Treasuries

In sum, U.S. government debt is serving up yields that do not match inflation and don't compensate investors for the level of indebtedness. With the aforementioned 105% debt-to-GDP ratio, the likelihood of more Fed easing, and congressional inability to tackle debt reform seriously, the only reason to purchase Treasuries is to "bet" on a worldwide catastrophe. ( Even in the case of worldwide calamity, there are no assurances that U.S. Treasury bonds will be seen as safe at these levels.)

Because I do not believe that a 2012 collapse is inevitable, and because I protect all assets with stop-limit orders and/or hedges, I am far more inclined to pursue the risk-reward associated with emerging-market bonds.

To the extent European and China uncertainties exist, I favor dollar-denominated vehicles like PowerShares Emerging Market Sovereign as well as iShares JP Morgan USD Emerging Market. If the Fed goes "all-in" on reflating/currency debasing with a shock-and-awe level QE3, look for outperformance from local currency debt funds like Market Vectors Emerging Market Local Currency.

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This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.