Sunday, May 02, 2010

US Bond Market Bubble: Support

These are support images for the prior post on US Bond Market Bubble. Essentially these are data from ICI Institute and from CNN Money showing net cash flows and yields on bonds over 1995-2009 and also the current spreads between US Treasury bills and Corporate Bonds.

Another aspect that points to a bear market in addition to the frightening volume numbers is the Gold Spectator web page's BEV Chart
. The Red Yield Plot shows that the US T-Bonds rising during the Stock Market Crash of October 2008. The Current Yield dropped over 200 Basis Points as the DJIA fell below its BEV -40% line.

Gold Spectator(GSR) analysis makes an interesting point that, despite seemingly rising flows, since October 2009, as a Debt Crisis stirred in Europe (worsened by April 2010 with PIGS in big trouble), some money has been slowly walking away from the US Treasury Bond Market. So the question we should all ask ourselves is whether this money is Smart or Dumb Money? GSR think it’s Smart Money and my own reading of a previous Societe Generale report correlates this opinion that too much speculative money is in bond markets with no clear objectives, a sure recipe for pain.

It is quite possible
we may be witnessing the early stages of a crisis in the US T-Bond market.

Is that possible? Yes, it’s happened before in the 1970’s. Before the 1970s, came the 1950s & 60s.All-in-all, these were 30 years of losing money in the US T-Bond market. But in the 1970’s, the flood gates of US Monetary Inflation opened wide, and US T-Bonds earned the moniker of “Certificates-of-Confiscation.”

The 2010 crisis might come on a lot more quicker and if that happens, the ensuing crisis will dwarf the 2008 debacle.

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