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The Fourth Bubble?



February 06, 2009 – Comments (11)

I got these charts from an e-mail that was sent to me by a company that was talking its book so to speak and promoting its services, but it is interesting nonetheless.  There has been a lot of talk lately about how U.S. Treasuries are a bubble.  These charts sure make it look like one to me.  Anyone who believes that this is the case can play the eventual implosion of Treasures by purchasing things like Ultrashort 20+ Year Treasuries ETF (TBT).

I have absolutely no doubt that interest rates are eventually headed significantly higher.  The timing of this happening is the question.  I am of the opinion that it will take much longer than many people believe because that the U.S. government will do whatever it can to keep rates low for now.  No one knows for certain when a dramatic rise in rates will happen.  Has it started already?  I am inclined to think no, but the yield on 10-year Treasuries has risen from a low of just over 2% to nearly 3% (it is sitting at 2.97% as I type this). 

This is definitely something to keep an eye on.  As the terrible recession that we are in cuts into Uncle Sam's tax revenue and massive spending packages are passed to stimulate the economy and bail out banks the government has been forced to bring record volumes of debt to market.  The government has brought over $100 billion worth of short term debt to the block each week for the last few weeks.  One has to think that eventually the market is going to choke on all of this paper.


11 Comments – Post Your Own

#1) On February 06, 2009 at 11:13 AM, angusthermopylae (38.50) wrote:

Forgive my ignorance, but exactly why would the government try to keep the interest rate low?  At first blush, it would seem that having the interest rate high would attract more buyers of government paper--therefore funding government efforts.

...thus, I can clearly not choose the wine in front of me...

But, then I put on my Bizzaro-world financial goggles, and it looks more like the opposite:  Higher interest rates mean the government has to pay back more in the long run.  If that is true, then having low interest rates means that the government gets a cheaper loan...

...therefore, I can clearly not choose the wine in front of you.

Perhaps it all comes down to having a dizzing intellect?

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#2) On February 06, 2009 at 11:43 AM, jgseattle (26.05) wrote:

low interest rates stimulates growth.  Companies can get money to invest and atractive costs so this lowers the hurdle rate.

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#3) On February 06, 2009 at 11:52 AM, retailsails (98.35) wrote:

FYI, another idea is to short, or buy puts on TLT which is the iShares 20+ year treasury.  Disclosure, I currently own June Puts...

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#4) On February 06, 2009 at 12:18 PM, kaskoosek (30.11) wrote:


The question is who is dumb enough to buy these at such a high price.

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#5) On February 06, 2009 at 12:20 PM, charlesblazer (30.53) wrote:

Three of those charts are multi-year charts showing 100% to 900% rises.  Then the 4th chart is a 2-month chart showing a 33% rise.  Let's see a multi-year chart on 10-year Treasuries.

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#6) On February 06, 2009 at 12:36 PM, angusthermopylae (38.50) wrote:


I can understand how low interest rates for bank loans spur investment/borrowing...but how exactly does it tie into low Treasury yields?  One of the "fundamentals" was that T-notes have higher interest rates/yields when times are good--no one wants to buy them because you can get a better return in the common market...

...and in bad times, the yields go down because everyone wants to put their money in a "safe" place...

I'm suspecting that there is an alternate mechanism at work here, be it intentional, unintentional, or some other mass-psychology mechanism.

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#7) On February 06, 2009 at 1:05 PM, kdakota630 (28.98) wrote:

Thanks for the excellent blog again, Deej.

I think I'm still pretty green when it comes to stocks but am even greener when it comes to Treasuries.  I think I'm in agreement with you on waiting a little bit longer before shorting them.

I'm definitely keeping an eye on them though.

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#8) On February 06, 2009 at 3:18 PM, TMFDeej (97.65) wrote:

Thanks for reading everyone.

Here's an article that states basically the same thing that I said:

Bond market calls the Fed's bluff

Mr. Bond, as in the Bond Market Traders not the much cooler James Bond, clearly does not believe the Fed's threat to start buying Treasuries.  Let's see if Bernanke and friends call their bluff.

Higher 10-year rates, which are correlated to mortgage rates, do not bode well for a quick recovery for housing.  It wouldn'y have recovered quickly even with low rates, but high rates will certainly make things worse.  After bottoming out in the high 4% range the average 30-year fixed mortgage is now 5.7%.

Mortgage rates hit six week high


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#9) On February 06, 2009 at 8:11 PM, Bupp (27.85) wrote:

Agree on it being a bubble, but look at the scale on those charts,

Housing goes from 800 to 7200,

Internet goes from ~80 to 720

Treasuries go from ~90 to ~ 120,

Just saying that because of the scale the charts are somewhat misleading.


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#10) On February 06, 2009 at 8:30 PM, nuf2bdangrus (< 20) wrote:

I prefer the RYJUX to the TBT, only because other ultrashorts suffer from price decay, so I worry they are poor investment vehicles.  I switched out of TBT to RYJUX, but green thumb tbt on CAPS.


Yes, I think the treasuries have topped...although unlike other bubbles, they are universally despised, and that is uncharacteristic of a bubble.  I am going to double my position in RYJUX to 10% of my portfolio Monday.


I think the longer term trade is long gold, long dividends, short treasuries, and short the dollar.


Dollar has strength by default.  This too shall change, as the world shall tire of supporting our abuse.  Look for new currencies to develop.

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#11) On February 09, 2009 at 7:15 AM, TDRH (97.18) wrote:

The only justification I can see for investment in Treasuries is if you were a foreign investor looking for the value of the US$ to fall more than yields rose and you wanted a "safe haven". 

In the past during financial/economic uncertainty there has been a gold rush.   I understand this cycle is relatively unique, but the money has to be moved somewhere after treasuries.

 My questions is "Where do you think the lemmings will run next?"  

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