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Treasury Bond Bubble?

Friday, 5 Dec 2008 | 3:57 PM ET

Make no mistake. America has become the port of choice in this financial storm. There’s even more evidence suggesting that investors are seeking safe haven in government bonds.

History In The Making

Earlier in the week, 10- and 30-year T-bill yields reached five-decade lows as investors sought out the relative safety of bonds after getting spooked by another sharp sell-off. (Remember yields move opposite to prices).

And on CNBC's Closing Bell, Dylan Ratigan added that on Friday T-bill yields neared zero. It goes to show that in an increasingly uncertain world, investors would rather earn next to nothing than take on risk. (The one-month bill yields a microscopic 0.02 percent).

"We're already at (yield) levels we've never seen before. It's just difficult to continue buying Treasuries at these prices," says Kim Rupert, managing director of global fixed-income analysis at Action Economics in San Francisco.

In fact Kim Rupert’s sentiment is shared by many investors. And that’s left many of them asking, might bonds might be the biggest bubble of them all?

Treasury Bond Bubble?

"If you draw a line it tells the whole story," says Oppenheimer chief market technician Carter Worth. "The sheer steep day after day appreciation of Treasuries is no different than the appreciation in tech stocks in 2000, or a REIT in 2006 or an energy stock just 6 months ago.”

In other words, Worth believes the movement in bonds is every bit a bubble like we saw in those other securities. “At some point gravity comes into play. The overshoot in the bonds, is just that. An overshoot,” he says.

Behind The Moves

There's another side to this story. You’ve probably heard the talk about $25 oil. And you might know that gold has had a terrible week when it really should have gone higher. And as far as Worth is concerned that’s what's behind the flight to safety.

"The panic out ofcommodities is what’s sparking the panic into Treasuries," Worth tells us.

What’s the bottom line? When the panic subsides, the T-Bill bubble could very well burst.

Charting the Markets
Charting the markets, with Carter Worth, chief market technician at Oppenheimer Asset Management Inc.



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Trader disclosure: On Dec. 3rd, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Pete Najarian Owns (AMR) And Is Short (AMR) Calls; Pete Najarian Owns (FCX) And Is Short (FCX) Calls; Pete Najarian Owns (HIG) Calls; Pete Najarian Owns (UYG); Pete Najarian Owns (SBUX) Calls; Karabell Owns (AAPL), (FCX), (GLD), (GOOG), (JPM), (UYG), (DRYS); Seymour Owns (AAPL), (BAC), (F), (MER); Seygem Asset Management Owns (FCX)

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