A Bear Market Coming In United States Bonds?

A Bear Market Coming In United States Bonds?

Two years ago, everyone wanted United States bonds. But will they stay wantable much longer?

It's not exactly hard to believe, you understand, to suggest that the bond market is about to get seriously slammed.

One, the stock market is actually looking like the lone bright spot in an endless morass of economic bad news. Two, bonds have never looked like a worse investment, given the way the global geopolitical scene looks lately. Pick an economy, and it's a serious downer. China looks like an inflating bubble in a room full of sewing needles. Japan still looks committed to looking like a George Romero economy, and the United States, largest economy in the world, makes Brewster's Millions look like a documentary about thrift by comparison. Three, a lot of money is starting to come off the sidelines. You can only sit on your hands for so long before they start to go numb and eventually get gangrenous and fall off.

Last week, the United States bond market launched a sales drive but no one came. Seriously though, the market for long term United States treasury debt looked like the market for cars that were still on fire: no one wanted them. Would you want to loan money to a man who's borrowed as much as the United States has and shows no real inclination (or ability, it's looking like) to pay it back?

Just a couple years ago, bonds were regarded as the safest haven there was in a firestorm of bad economic news. But now that the firestorm's dying down (at least somewhat), people are looking elsewhere. Because that safe haven status came with a price--incredibly low yields. When people were falling all over themselves to lock their cash in bonds for safekeeping, the feds didn't have to pay out. Why attract people who were already coming in droves? But now, those low yields aren't making things look good--and investors are starting to question where they can get a profit.

Bond yields will have to go up soon to keep people interested, but will anyone buy them? It's a scary thought, but pretty soon, the United States may be the new junk bond king.

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Comments

  • R. Dean

    April 01, 2010

    This is the conventional wisdom but it may be very wrong. Rates do not have to go up if the economy continues to sputter along. And, as your article points out, the rest of the world is doing poorly, Treasuries will remain the safe haven asset. Those factors could keep yield down and prices up for the foreseeable future. Indeed, despite the accumulation of debt and the winding down of the Fed's programs, we have not seen an appreciable spike in interest rates.

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