That Was Then and This Is Now. Beware of the Treasury Bond Bubble!

Irrational market in Treasuries push yield to all-time lows

At this point you probably asking yourself, "what does he mean by the title of the post?"

Just recently I wrote of how the S&P dividend yield was higher than that of the 10-year Treasury bond.  At the time of writing that article it was at 3.57%. 

Today the yield for the 10-year Treasury bonds sits at 2.57%. 

I have one word: BUBBLE!

Lets reference a recent Bloomberg snapshot of the current yields in the Treasury market:

U.S. Treasuries

                       COUPON    MATURITY    CURRENT  PRICE/YIELD    PRICE/YIELD CHANGE  
3-MONTH          0.000       03/12/2009    0.01 / .01                                 0 / .000   
6-MONTH          0.000       06/11/2009    0.2 / .20                                   0.02 / .020   
12-MONTH        0.000       11/19/2009    0.45 / .46                                 0 / -.000   
2-YEAR              1.250      11/30/2010    100-30+ / .76                           0-01 / -.018  
3-YEAR              1.125      12/15/2011    100-08½ / 1.03                        0-07 / -.074   
5-YEAR              2.000      11/30/2013    102-10+ / 1.51                         0-05 / -.033   
10-YEAR            3.750      11/15/2018    110-08½ / 2.57                         0-09 / -.031   
30-YEAR           4.500       05/15/2038    128-05½ / 3.04                         0-12+ / -.017      

Investors seeking safety from losses in equity markets charged the Treasury zero percent interest when the government sold $30 billion of four-week bills on Dec. 9th.  That was the same day that three-month bill rates turned negative for the first time since the US began selling debt in 1929. 

With that said, I am very bearish on the near-term outlook of treasuries.   This relentless frenzy to buy treasuries reminds me very much of the tech bubble in 2000.

In fact, I am hearing that many large hedge funds are beginning to short Treasury Bonds with the notion that they are way overbought.  And in this case, I agree.

My advice to new buyers of government paper: Beware!