Sub-zero yields spark fears of US Treasury bubble
The rally in Treasuries that pushed yields on bills below 0% this week is adding to concerns that the $5.3-trn market for government debt is a bubble waiting to burst.
By Bloomberg |
BLOOMBERG: The rally in Treasuries that pushed yields on bills below 0% this week is adding to concerns that the $5.3-trn market for government debt is a bubble waiting to burst. Investors seeking safety from losses in equity and credit markets charged the Treasury 0% interest, when the government sold $30 bn of four-week bills on December 9.
A day later three-month bill rates turned negative for the first time since the US began selling the debt in 1929. Yields on two-, 10- and 30-year securities touched record lows this month. ���Treasuries have some bubble characteristics, certainly the Treasury bill does,��� said Bill Gross, co-chief investment officer of Newport Beach, California-based Pacific Investment Management Co, which oversees the world���s largest bond fund.
���A Treasury bill at 0% is overvalued. Who could argue with that in terms of the return relative to the risk?��� he said in a Bloomberg Television interview on Wednesday.
The 30-year bond returned 23.6% since September, including reinvested interest, more than it earned in any one year since gaining 34.1% in 1995, according to Merrill Lynch & Co index data. Treasuries of all maturities gained an average of 11.9% this year, compared with a 39% drop in the Standard & Poor���s 500 Index and a loss of 15.3% in Merrill Lynch���s broadest corporate bond index.
While supply has increased, rates on three-month bills fell 2.89 percentage points in the last year to 0.01% today, after trading as low as negative 0.05% on December 9. The rate on four-week bills plummeted from a peak of 5.175% on January 29, 2007. The three-month bill yield was unchanged on Thursday.
���There is basically insatiable demand for Treasury bills,��� said Ira Jersey, a New York-based interest-rate strategist at Credit Suisse Group, said in a Bloomberg Television interview. ���There is a number of reasons for this, not only angst over deflation and what���s going on with risky assets, but there is also just a lot of cash that does not want to take any credit risk.���
Hunger for Treasuries increased as financial companies reported $984 bn of losses and writedowns related to the collapse of sub-prime mortgages since the start of 2007.
A day later three-month bill rates turned negative for the first time since the US began selling the debt in 1929. Yields on two-, 10- and 30-year securities touched record lows this month. ���Treasuries have some bubble characteristics, certainly the Treasury bill does,��� said Bill Gross, co-chief investment officer of Newport Beach, California-based Pacific Investment Management Co, which oversees the world���s largest bond fund.
���A Treasury bill at 0% is overvalued. Who could argue with that in terms of the return relative to the risk?��� he said in a Bloomberg Television interview on Wednesday.
The 30-year bond returned 23.6% since September, including reinvested interest, more than it earned in any one year since gaining 34.1% in 1995, according to Merrill Lynch & Co index data. Treasuries of all maturities gained an average of 11.9% this year, compared with a 39% drop in the Standard & Poor���s 500 Index and a loss of 15.3% in Merrill Lynch���s broadest corporate bond index.
While supply has increased, rates on three-month bills fell 2.89 percentage points in the last year to 0.01% today, after trading as low as negative 0.05% on December 9. The rate on four-week bills plummeted from a peak of 5.175% on January 29, 2007. The three-month bill yield was unchanged on Thursday.
���There is basically insatiable demand for Treasury bills,��� said Ira Jersey, a New York-based interest-rate strategist at Credit Suisse Group, said in a Bloomberg Television interview. ���There is a number of reasons for this, not only angst over deflation and what���s going on with risky assets, but there is also just a lot of cash that does not want to take any credit risk.���
ADVERTISEMENT
Hunger for Treasuries increased as financial companies reported $984 bn of losses and writedowns related to the collapse of sub-prime mortgages since the start of 2007.
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
