Everyone has been dumping stocks for the last year and retreating to the relative safety of Treasury notes. But where will we invest when that ride is over? We may soon find out.

In a recent Bloomberg article, Kim Heeseok, who oversees South Korea’s National Pension Service, said the time is now to get out of Treasuries.

“The stimulus plan may cause inflation. The U.S. will raise the benchmark interest rate.”

To illustrate the point, investors in South Korea have reduced their Treasury holdings by almost half in the last year, down to $28.6 billion in November.

Taking a bit of a contrarian standpoint it seems is China, which continues to up its stake in the U.S. and now holds $681.9 billion in Treasury notes as of November.

So what does this mean to you as an investor if the prediction by Mr. Heeseok holds true?

According to Bloomberg data, if you bought Treasury notes now, you would lose approximately 3.3 percent including reinvested interest by the end of the year.

This inflationary fear is also spreading to yields here in the U.S. The spread on Treasury Inflation Protected Securities widened considerably versus a conventional note over the last few months. Two months ago, the spread was minus eight basis points, and now stands at a positive 53 basis points.

So were can you turn if the stock market still makes you queasy?

Good old bonds.

But not just any bond. You want high-rated bonds that are preferably selling at a discount. If you aren’t sure where to start, check out Steve McDonald’s service The Bond Trader . He has found some spectacular bonds trading at a discount to par, and may be just what you are looking for.

Source: What’s Left to Buy if Treasuries Go South?