Fed pushing on string to get investors to buy riskier assets

After four years of essentially zero interest rates, the Fed is promising two more years of no return in an effort to force investors into riskier assets.

Why should this effort succeed more now that it has for the last four years?

Corporate America has already shown that it is not going to invest in itself, a riskier asset, in the absence of demand.  It would rather hold onto its cash.

Individuals, who are savers, have already shown that they will cut current consumption and invest according to Mark Twain's observation about being concerned about the return of their money and not on their money.

According to a Wall Street Journal article,

With the Federal Reserve basically guaranteeing easy monetary policy for the next two years, analysts say Treasurys investors have to get used to a "new world" where they are forced to buy longer-term, albeit riskier, U.S. debt. 

In a rare move Tuesday that explicitly stated it would keep the federal-funds rate near zero through at least mid-2013, the U.S. central bank essentially anchored short-term notes to ultralow yields. Traders say that will inevitably send buyers further out on the yield curve if they want any kind of return. 

"If you want a piece of the action, you have to go longer out," said Millan Mulraine, senior strategist at TD Securities. "That's one of the goals of the Fed—to push people out to riskier assets, to push them out on the yield curve." 

More buying of longer-term debt means those securities' yields will fall, as prices move inversely to yields. This will make the yield curve—a reflection of the gap between short-and long-dated rates—start flattening out, a typical sign of economic weakness. The curve already has flattened significantly over the past six months as investors grow increasingly worried about the global economic outlook....

But despite the session's movements, investors aren't yet wholly convinced about parking their cash in U.S. debt for three decades. The allure of Treasurys took a hit last week when S&P downgraded the U.S.'s debt rating. The country's mounting debt load isn't nearly cleaned up, keeping fears alive that there will be another ratings downgrade that will hurt long-term Treasury holders. 

That kind of thinking leaves investors in a conundrum: They either continue buying short-term debt and earn next to nothing, or they take the risk of earning a bit more by locking themselves into a prolonged period of holding U.S. paper.