UPDATE: Treasury Bond Bubble?


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.

And on Friday shorter term T-bill yields neared zero. (Remember yields move opposite to prices). It goes to show that in an increasingly uncertain world, investors would rather earn next to nothing than take on risk. (The three-month bill yields a microscopic 0.02 percent).

"It's pretty rational what's occurred," explains Mohamed El-Erian, the chief executive of bond giant Pacific Investment Management Co. or PIMCO. "people are scared and Friday's employment number was pretty scary."

"We're already at (yield) levels we've never seen before. It's just difficult to continue buying Treasuries at these prices," adds 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 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 on the Fast Money Final Call. "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 had a terrible run when it really should have gone higher. As far as Worth is concerned that’s a "tell"; a major factor in the flight to safety.

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

“The race into Treasuries was also fueled by a growing appreciation that the economy was possibly going into more than a recession and talk that the Fed could start buying Treasuries, adds Mohamed El-Erian.

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


Charles Schwab Question of the Day

On a related note, if you're like Carter Worth and cautious of T-bills, what do you think is the better investment?

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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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