Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Palladium Surges above $2,400. Is It Sustainable? - 27th Jan 20
THIS ONE THING Will Tell Us When the Bubble Economy Is Bursting… - 27th Jan 20
Stock Market, Gold Black Swan Event Begins - 27th Jan 20
This Will Signal A Massive Gold Stocks Rally - 27th Jan 20
US Presidential Cycle Stock Market Trend Forecast 2020 - 27th Jan 20
Stock Market Correction Review - 26th Jan 20
The Wuhan Wipeout – Could It Happen? - 26th Jan 20
JOHNSON & JOHNSON (JNJ) Big Pharama AI Mega-trend Investing 2020 - 25th Jan 20
Experts See Opportunity in Ratios of Gold to Silver and Platinum - 25th Jan 20
Gold/Silver Ratio, SPX, Yield Curve and a Story to Tell - 25th Jan 20
Germany Starts War on Gold  - 25th Jan 20
Gold Mining Stocks Valuations - 25th Jan 20
Three Upside and One Downside Risk for Gold - 25th Jan 20
A Lesson About Gold – How Bullish Can It Be? - 24th Jan 20
Stock Market January 2018 Repeats in 2020 – Yikes! - 24th Jan 20
Gold Report from the Two Besieged Cities - 24th Jan 20
Stock Market Elliott Waves Trend Forecast 2020 - Video - 24th Jan 20
AMD Multi-cores vs INTEL Turbo Cores - Best Gaming CPUs 2020 - 3900x, 3950x, 9900K, or 9900KS - 24th Jan 20
Choosing the Best Garage Floor Containment Mats - 23rd Jan 20
Understanding the Benefits of Cannabis Tea - 23rd Jan 20
The Next Catalyst for Gold - 23rd Jan 20
5 Cyber-security considerations for 2020 - 23rd Jan 20
Car insurance: what the latest modifications could mean for your premiums - 23rd Jan 20
Junior Gold Mining Stocks Setting Up For Another Rally - 22nd Jan 20
Debt the Only 'Bubble' That Counts, Buy Gold and Silver! - 22nd Jan 20
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

At Least Be Aware Of The Current Risk In Treasury Bonds!

Interest-Rates / US Bonds Aug 25, 2010 - 03:15 AM GMT

By: Sy_Harding


Best Financial Markets Analysis ArticleMoney continues to pour into bonds at a ferocious pace, with investors confident they are a safe and conservative holding in the midst of all the economic and stock market uncertainty.

With last week’s further rally, the 30-year Treasury bond had its biggest weekly gain in price since May, pushing their yield down to just 3.66%. The yield on 10-year Treasury notes was pushed down to 2.61%, while the yield on two-year notes fell to 0.496%.

The newly found confidence in bonds is in several ways reminiscent of the tech stock bubble in 1999, and the ease with which new issues of tech stocks were being eagerly swept up by investors convinced they could only go higher, finding all kinds of reasons not to believe warnings that they were in a bubble.

Corporations are currently scrambling to issue new supplies of bonds as fast as tech companies brought new stock IPO’s to market in 1999.

IBM recently had no trouble raising $1.5 billion by issuing three-year bonds that pay a record low 1% interest. That is, the bonds sold at 100 times their yield. It’s worth noting that IBM has an impressive record, going back to at least 1979, of timing its bond sales, most often selling at very low yields when investors were piling into them, and just before yields began to rise. Jack Albin, chief investment officer at Harris Private Bank says, “I don’t know how they’ve done it over the years, but it’s remarkable.”

With bond investors scrambling for most any issue the market tosses in front of them, Wall Street is now even considering the possibility of some companies being able to successfully issue 100-year bonds, bonds that would mature in 2110, long after the buyers have passed away. It’s been done a few times in the past, by IBM, Disney, Coca-Cola, Ford Motors, Federal Express, and a few others.

Imagine the temptation of being able to borrow large amounts of capital from investors at very low interest rates, with the loan not coming due for 100 years. It takes a buyer with a special need, or lacking in understanding of why they’re being offered a yield higher than on 30-year bonds, and unusual conditions in the bond market. Obviously, Wall Street believes the unusual conditions are present.

Fueling the bond frenzy is not just the determination to find a safe haven that at least pays something more than the 0% of money markets, but the popular opinion that bonds will continue to rally as a safe haven as long as the economy appears to be softening, and as long as the stock market correction continues.

Be aware that is not a given, or even evidenced by recent history.

As the following charts show, the big spike-up in bonds at the end of 2008, which was also fueled by economic worries and a declining stock market, ended on December 18, 2008, even as worries about the economy worsened further, and almost three months before the stock market ended its severe 2007-2009 bear market (on March 10, 2009).

And are bonds conservative and safe? As the top chart shows bonds are often as volatile as stocks. Holding through their declines can often be as painful as holding through a stock market decline.

So the bubble rally in bonds may continue, but investors still piling into them need to be more aware of the risks than they appear to be, and aware that timing the bond market is almost as important as timing the stock market.

Sy Harding is president of Asset Management Research Corp, publishers of the financial website, and the free daily market blog,

© 2010 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules