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What's the problem with the T-bonds?



June 11, 2009 – Comments (6)

I've seen a lot of posts lately that the stock market is now going to crash because of the treasury bond market in the United States.  These posts have been about how T-bonds (10 and 30 year) have yields that are rising quickly and that this is a sign that other countries are giving up on the dollar or the United States as a safe debtor country.  

I just wanted to point out where the 10-year and 30-year T-bonds (which have been those that are rising) were at just 1 year ago.

 1 year ago, the 10-year T-bond was near 3.9%.  Now it is near 3.9%

 1 year ago, the 30-year T-bond was near 4.6%  Now it is near 4.7%


If you look at the shorter term bonds:

  1 year ago, the 5-year T-bond was near 3.2%, now it is below 2.9%

  1 year ago, the 2-year T-bond was near 2.4%, now it is near 1.34%

  1 year ago, the 6-month T-bond was near 1.8%, it is still near .3%

  1 year ago, the 3-month T-bond was near 1.6%, it is still near 0.15%


Take a look at the NYT graph to see the curves of these yields. 


What is my point?  10- and 30-year T-bonds are just returning to normalcy - which makes sense, as it is clear that our economy is not going to crash - that there may be good alternative investments to treasuries now which are not as risky as previously though.  This goes with the stock market rising, as money flows into long positions.

Also noticeable is that the 3- and 6- month, as well as the 2-year T-bond still have very low yields that can go much higher before returning to normal conditions.

Long story short - don't listen to the bears on this one, the treasury market is not imploding - yields are just correcting back to normal conditions. 


6 Comments – Post Your Own

#1) On June 11, 2009 at 1:29 AM, awallejr (31.40) wrote:

Yup.  Bear's are just trying to find anything they can to get that next crash going heheh.  Of course yields are going up, just too much supply, plus people want more risk since things seem to be stabilizing. And actually the spread curve is making banks a killing.  I really do urge people to jump into financials at least into July because you will see a runup as they declare earnings. 

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#2) On June 11, 2009 at 2:55 AM, intangibles (89.83) wrote:

Thank you.  Its refreshing to see some rational thinking about the recent rise in rates.  Take a look at the blog "Warning: Plunge Alert" posted a few days ago to see all the bickering about the "crash" in US treasuries. 

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#3) On June 11, 2009 at 5:13 AM, kaskoosek (30.26) wrote:

Money is debt.


America is bankrupt.


Dollar is worthless.



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#4) On June 11, 2009 at 8:15 AM, alexxlea (58.66) wrote:

It's like the good old oil embargo days, except this time around there's no oil, period, and we aren't the end-all be-all economy of the world. Time to fall off a cliff and freefall for a while once again.

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#5) On June 11, 2009 at 11:02 AM, checklist34 (98.40) wrote:

This is almost a record for CAPs.  Almost 3 bullish comments in a row to start a thread before the bears come in. 

At least nobody called the bullish people not intelligent yet. 


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#6) On June 11, 2009 at 1:41 PM, rofgile (99.11) wrote:

I think over time the perspectives will moderate and as the market gets less choppy - there will be less fear mongering - as well as less calls for DOW 14000 and wild bullishness.

The facts of the current situation is that A) banks are less likely to immediately implode - BUT - housing is still sucky, more loans will go bad and commercial lending will begin to have problems.  While the banks won't go out of business, it's hard to believe that without addition low interest loans from the government that they will be making huge profits.

B) Jobs are terrible now, and people will moderate spending.  If oil and gas continue to rise, the spending will further moderate.  A recovery based on consumption won't happen.  A recovery led by cost cutting and job cutting is what will happen.  This will not be a robust return of economic strength - and will be a slow process (5 years or more) before things really are back to a good progression.  

C) This talk of dollar collapse, US losing AAA, Bond explosions is the new fear mongering.  I'm not buying into it.


My current caps strategy is to short gold miners and keep building an anti-gold position.  If the dollar does collapse and gold goes to 2000 I will lose my 98% ranking.  But if moderation prevails and things arent' great but aren't terrible - the dollar will be fine, spending from the government will moderate, investors will look towards stocks domestic and international.  At this point gold will burn out and fall back to $750 or lower (likely time period around 5 years or so).  I'm going to bet on this and see if I can raise my CAPS score into the 99% and higher.

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