Tags: Gold | Treasurys | bond | bubble

MarketWatch’s Gold: Treasurys May be ‘Mother of All Bond Bubbles’

Sunday, 30 Sep 2012 02:33 PM

By Dan Weil

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The flood of money into bonds since the financial crisis began in 2008 has pushed valuations to unreasonable peaks, says MarketWatch columnist Howard Gold.

That’s particularly true for Treasurys, Treasury inflation-protected securities (TIPS), and high-yield, or junk, bonds, he writes.

“Long Treasury bonds could be the mother of all bond bubbles,” Gold says.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

The 10-year Treasury yield plummeted to a record low of 1.38 percent in July from 5.25 percent in June 2007. He says July’s level may represent the peak of the rally.

Many experts, such as DoubleLine Capital CEO Jeff Gundlach, agree. But be careful.

Pimco’s Bill Gross emptied his Total Return Fund of Treasurys early last year, thinking the same thing. He and his shareholders paid the price as bonds continued to appreciate.

As for TIPs, they’ve become so popular that they offer negative real yields. So you’re essentially paying the Treasury to borrow your money – not a strong investment proposition.

Junk bonds have soared amid a thirst for yield. But any sort of credit crunch could quickly send prices crashing back down to earth.

Renowned investor Leon Cooperman of Omega Advisors agrees with Gold when it comes to Treasurys.

“I think the bubble that exists today is in U.S. government bond yields,” he tells CNBC. “Bond yields are being subsidized by the government, so I want to be out of U.S. government bonds. I think they’re a mispriced asset class.”

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

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