The Bond Bubble – July 2012 Update

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

Since my last post on the Bond Bubble (the February 21 post titled “The Bond Bubble – February 2012 Update“) yields of various Treasury maturities have continued to decline and many have been establishing all-time lows in the last few days.

Here is a chart depicting various Treasury yields from 2007 as seen in Doug Short’s blog post of  July 24 titled “Treasuries Update:  More Historic Low Yields” :

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 shown:

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

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 August 15, 2011 post (“The Bond Bubble – Update“) :

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 1337.88 as this post is written