1) Interest rates are currently at historic lows, but instead of choosing to take advantage of those rates by locking them in for decades, the U.S. Treasury has chosen to follow the lead of subprime borrowers.
2) The government should be taking on the equivalent of a thirty year fixed-rate mortgage by issuing only 30 year bonds. However, they have chosen the path of what amounts to a short term adjustable rate mortgage by moving their debt duration to the short end of the yield curve.
3) Today the Treasury has an average maturity on its debt of just about 5 years. Compare that with the U.K. which is about 14 years and even to Greece which is about 8 years in duration. That means the U.S. must roll over its debt much more frequently and is much more susceptible to rising rates. The only logical explanation for this practice is that the U.S. doesn't feel it can issue long term debt and still afford to service its interest rate expenses.
4) the housing market of circa 2006 and the U.S. bond market of today contain all three elements of a classic asset bubble; massive oversupply, an unsustainably high price level and over-ownership of the asset class in question. In the early part of the last decade, home builders began to increase construction volume to twice the intrinsic demand for home ownership. Home price to income ratios eventually reached unsustainable levels. And levels of home ownership reached a record high percentage of the population.
Likewise, the U.S. Treasury is dramatically increasing the supply of debt each year to fund our $1 trillion deficits. The public has plowed their savings into the U.S. debt market as commercial bank holdings of Treasuries have reached an all-time high. And bond prices have soared, pushing the yield on the 10 year note to 3.6%, which is less than half the average yield of 7.3% going back to 1969.
ERGO --- all the elements of a bubble in the bond market are in place, just as they were for the real estate market in the middle of the last decade.
SOLUTION : Aggressively cut spending on the federal level.
THAT AIN'T GONNA HAPPEN IF DEMS ARE IN POWER.
I am amazed they have been able to keep this derilict afloat for this long. It is a boat with 10 holes in the bottom and they only have two corks.
Capital is daily being siphoned from the private market to pay for Government. This is job creating capital. Not only is the treaury market going to crash, but the economy is going nowhere, fast.
Government spending at all levels is a bigger bubble than the subprime mortgage collapse. It will burst. It will be ugly.
The entitlement programs and interest on the national debt make up more than half of federal spending. And that will increase as 10,000 people a day retire over the next 20 years. We can not aggressively cut spending without reforming and reducing the entitlement programs.
One of the problems with my 401K is that every choice is either some sort of stocks or bonds or a mix. I’d love a precious metals choice, but there isn’t one.
THAT AIN'T GONNA HAPPEN IF DEMS OR REPS ARE IN POWER!
The first image that popped into my mind when I saw the stock market numbers for today was George Soros rubbing his hands together.