Snappy newsletters. Simple Facebook sharing. Spirited comments. Sweet features are waiting… GET THEM NOW!

Hot on Facebook

Uproar After NC State Agent 'Fixes' Girl's Lunch Preschooler has to eat chicken nuggets instead of mom's meal »

Next Bubble May Be in Treasuries

But the rest of the bond market is attractively priced

By Nick McMaster, Newser Staff

Posted Jan 6, 2009 8:15 PM CST

(Newser) – As the credit and stock markets collapsed, investors rushed to Treasuries as the safest possible bet. But the rush to safety could be fueling a bubble, writes Andrew Bary for Barrons. Yields have been plummeting, with 10-year notes at 2.4% and three-month bills selling last week for 0.05%. The bonds will still pay out at maturity, but prices could fall steeply by year’s end.

The Fed’s super-low interest rates and looming fiscal stimulus, and the possible recovery of the economy by mid-2009 all make a reckoning in Treasuries likely. Bary recommends playing the other aspects of the bond market instead. AAA 30-year municipal bonds now offer 5.25%—double the yield of 30-year T-bonds—while the average junk bond, while risky as ever, offers a 20% yield.

[Images (2)]

[Quotes (1)]

In this 2001 file photo, an oversized $100 "Patriot Bond" is on display at the Treasury Department in Washington. (AP Photo)

A man sits in front of the New York Stock Exchange before the start of trading on Monday, Sept. 15, 2008. (AP Photo/Peter Morgan)

« Prev« Prev | Next »Next » Slideshow

Get out of Treasuries. They are very, very expensive. - Mohamed El-Erian, chief investment officer of Pacific Investment Management

« Prev« Prev | Next »Next » Slideshow

To report an error on this story, notify our editors.

More Newser Stories

Man Charged With Stealing $9.5M of Computer Code

Bo Zhang accused of pilfering Treasury software

(NEWSER) - A Chinese computer programmer has been charged with stealing software code worth $9.5 million while working at the Federal Reserve Bank of New York. Prosecutors say Bo Zhang, a Chinese citizen who worked for a technology firm contracted to work on code at the New York Fed, copied a software system relating to the "tracking of the billions of dollars that are electronically transferred every day in the US’ general ledger" onto a hard drive, then copied those contents onto his home computer, Bloomberg reports. More»

Fed Tries 'Operation Twist' to Spur Growth

Move intended to hold down long-term interest rates

(AP) - The Federal Reserve says it will sell $400 billion of its shorter-term securities to buy longer-term holdings, its latest effort to boost a weak economy. The Fed's move to rebalance its $2.87 trillion portfolio could lower Treasury yields further. Ultimately, it might reduce rates on mortgages and other consumer and business loans. ( MarketWatch has more details on the strategy nicknamed "Operation Twist," so-called because in Wall Street lingo it "twists the yield curve.") The Fed also said it will reinvest its holdings of mortgage-backed securities, which would help keep mortgage rates at super-low levels. The Fed had previously reinvested the interest and principal into Treasury purchases. More»

Wall St. Plotting for Debt Doomsday

Prospect of default fraying nerves

(NEWSER) - As lawmakers scramble to hammer out a debt deal, Wall Street firms are working on ways to deal with America defaulting on its debt—and on ways to make a buck out of any upheaval. Treasury bonds function like a currency on Wall Street and default after the Aug. 2 deadline could cause chaos, the New York Times finds. Some investors are already unloading bonds, while others may have no choice if the bonds lose their triple-A rating. More»

Fed Extends Bond Program

Shrugs off good economic news, says employment still in trouble

(AP) - The Federal Reserve unanimously agreed to extend its $600 billion Treasury bond-purchase program today, saying the economy isn't growing fast enough to lower unemployment. The decision came from a new lineup of voting members that includes two officials who have criticized the bond purchases. They have said the purchases could eventually ignite inflation or speculative buying in assets like stocks. More»

Feds Quarantine $110B in Potentially Defective $100 Bills

New security features caused wide-scale printing problem

(NEWSER) - The new $100 bills were designed to thwart counterfeiters—but instead, the complex process required to create the high-tech bills has thwarted printers, resulting in $110 billion in currently unusable bills. The new hundreds, planned for roll-out in February, include a 3D security strip and color-shifting bell image—and producing them is so tricky that as many as 30% of those printed so far creased down the face during the process, resulting in a blank area, sources tell CNBC . More»

NEWS FROM OUR PARTNERS

What is Newser?

Face it: there's too much news. At Newser, we choose the most thought-provoking and entertaining stories from hundreds of US and international sources and reduce them to a headline, picture, and two paragraphs. And we do it 24/7—you can come back morning, noon, night (and in between) for something new that matters. Read less, know more.

Learn more »

Partnering with: Slate

View Newser on the mobile website

Next Bubble May Be in Treasuries