At the beginning of the month Barron’s ran a cover story calling a bubble in treasuries: “Get Out Now” (subscription required – e-mail me if you want a link).
A month earlier, the fabulous Jim Grant wrote an op-ed in the Financial Times on the same subject: “Return Free Risk”.
Well, the market action is suggesting that the bubble might be beginning to pop. After trading down around 2%, the yield on the 10 year treasury has shot up in January, closing today at 2.87%. Check out BeSpoke’s “10 Year Treasury Yield Reaches Key Juncture”, Thursday January 29, 3:40pm EST.
Even today, with stocks selling off in a big way, treasuries continued to selloff. The two usually trade inversely as investors sell stocks and buy treasuries for safety or vice versa.
In addition, the Fed just said yesterday that they are prepared to buy treasuries: “The Committee also is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets” (FOMC Jan 28 09 Statement).
Disclosure: Top Gun is long the ProShares UltraShort 20+ Year Treasury ETF (TBT).