The Bond Bubble – February 2012 Update

In previous posts I have discussed the Bond Bubble and its many facets.

Since my last update on August 15, 2011 (“The Bond Bubble – Update“), the yield on the 10-Year Treasury has roughly been in the 1.7%-2.4% range.  This is seen in the 3-year daily chart, LOG-basis, as shown below:

(click on chart to enlarge image)(chart courtesy of; chart creation and annotation by the author)

It should be noted that current rates on 10-Year Treasury Yields are, from a long-term historical view, extremely depressed.  This can be seen in a monthly chart of 10-Year Treasury Yields dating back to 1994, on a LOG-basis, with a red trendline :

(click on chart to enlarge image)(chart courtesy of; chart creation and annotation by the author)

From an even longer-term perspective, looking at a 222-year chart of long-term interest rates, which uses the 30-year bond when available, one can also gain a perspective on today’s abnormally low yields.  As seen on that chart, current yields on long-term interest rates have only been lower in one other time period in the 222-year history, with that other period being roughly 1940-1955.

Many investors, including those very prominent, currently believe that the biggest threat to the future value of bonds is inflation.  While I believe that the threat of inflation is a concern, there are various other factors that pose immense threats as well.

As I wrote in the aforementioned August 15, 2011 post:

While this Bond Bubble may have a little more “upside” left to it, I am of the belief that attempting to derive gains from bonds at this point is akin to “picking up pennies in front of a steamroller” – i.e. there is little to be gained, and much to be lost.

While the Bond Bubble continues, its risks to investors, financial markets and the economy in general has in no way diminished.

The perils of this bond bubble and its future “bursting” can hardly be overstated.  As I mentioned in the April 6, 2010 post (“The Threat Of Rising Interest Rates“) :

Falling interest rates over the last 20 years have been an “enabler” of much of our current day economy.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1361.23 as this post is written