Is The Treasury Market Forming A Bubble?
The Treasury market has been making news, and not in a good way. Just past the midway point of the first quarter, Warren Buffett announced that the investors rushing to buy T-Bills that paid next to nothing were making a big mistake. He predicted massive inflation as a result of the government stimulus efforts and categorized the Treasury market as being in the same category as “the internet bubble of the late 1990s and the housing bubble of the early 2000s.” Investors, of course, were flocking to Treasuries because they offered the only shelter from the storm in 2008. Demand coupled with an ailing economy drove interest rates down and prices up. Yield Ups and Downs On December 18, the benchmark 10-year Treasury offered a yield of 2.08%. It opened the new year on January 2 at 2.4%. By the middle of June, it came in near 4%, and currently hovers near 3.75%. Prices move inversely to yields, so the investors who overpaid for a yield that was nearly 50% lower than the current rate are not
