US Treasury Yields Have Bottomed
US Federal Debt has been particularly attractive in this economic downturn as more than ever investors are concerned about the prospect of deflation. At present, a 10 year bond offers a yield of just 2.64%, and that’s probably about as low as we’ll see in our lifetime.
Investors Losing Interest
June data for US Treasury sales was made public today and the numbers reflected a reduction in China’s US Treasury stockpile. In just one month, China knocked more than $20 billion off its Treasury holdings, but still owns well over $800 billion in long and short dated debt.
Economists believe that the reduction in holdings is mostly due to yields, which at 3.77% for a long bond are about as interesting as watching paint dry. Even worse is that the short term yields are even more boring… 26 basis points for a 1 year loan might as well be a slap in the face.
Pop goes the bond bubble
I have been waiting for the bond bubble to burst for quite some time. As yields tread lower and the economy recovers, investors are going to want more bang for their buck, and they won’t be afraid to shop elsewhere. With our #1 debt holder now looking to move at least some of their cash out of US federal bonds, it would be a smart move to start picking up some shorts here. (Refinancing your home would be a good move too!)
A maturity wall is fast approaching, and limited funds will be available to carry debt forward. There will be a day of reckoning for the debt markets when yields surge, prices crash, and everyone realizes that bonds aren’t always the safest place to be. I don’t think it’ll be too much longer.
Sounds like inflation is coming through the pipes!