Experts: Get Out of Bonds Now Before the Bubble Bursts (T-bill to tank?)

Newsmax via Money News ^ | 31 Dec 2009 | Dan Weil

[TigerLikesRooster]

Experts: Get Out of Bonds Now Before the Bubble Bursts

Thursday, 31 Dec 2009 04:42 PM Article Font Size

By: Dan Weil

Some sobering advice from Wall Street experts as the New Year dawns: The 2009 surge in bond prices represents a bubble that will soon burst — after all, government debt issuance appears to be turning into an investment scam.

"My biggest fear is the bond market,” says Dan Deighan, founder of Deighan Financial Advisors.

“There is going to be a meltdown," he told CNBC. "It's time to get out of bonds."

The Barclays Capital corporate bond index had gained about 19 percent by the last few days of 2009.

But the tepid demand for recent Treasury auctions shows investors are tiring of bonds, Deighan says.

"I think it's clear with what's been happening in December that it's time to (exit bonds). The yield curve is steepening."

The yield curve, which measures the yield premium of 10-year Treasury bonds over two-year Treasurys, recently widened to a record 2.88 percentage points.

[TigerLikesRooster]

Ping!

[FReepaholic]

I’ve been watching too much football lately. I read the title as: “Get Out of Bounds Now...”

[silverleaf]

bttt

[silverleaf]

bttt

[SonOfDarkSkies]

I agree it's not a good idea to go "long" on any debt instrument, but what's the problem with T-bills? If the gov't reneges on bills, the country will collapse financially.

BTW, I got out of the market recently (just before Christmas) and bought a big chunk of 90 days bills. I plan to stay there (in rollover mode) until the Obama idiocy somehow resolves itself.

[Eric in the Ozarks]

I moved into bond funds when the Dow hit 10390.

[poindexter]

I agree it's not a good idea to go "long" on any debt instrument, but what's the problem with T-bills? If the gov't reneges on bills, the country will collapse financially.

The gov't. won't default, but when you go to redeem your bond, they will just print up the money to do so. Multiply that by a gazillion an pretty soon we're all taking wheelbarrows of dollars to the store to buy a loaf of bread.

[SonOfDarkSkies]

I recommend staying on the short end of the debt market until we see the effects of all this money printing by the Fed.

The shoe has got to drop in the very near future with a steep climb in rates likely.

[proxy_user]

They are talking about long-term bonds. A rise in interest rates would cut their value by 20-30%.

If you are all short-term, and not a bond trader, you shouldn’t care.

The other effect an interest rate increase would have would be to lower stock prices.

[SonOfDarkSkies]

I think you are right unless someone stops obama in the very near future and demands the gov't get on a solid financial footing.

If the government were to immediately start cutting spending and reduce programs and adopt pro-business policies, this could, to some degree, be avoided. That said, Obama will be the last person to realize what must be done.

[SonOfDarkSkies]

Agreed!

[Alberta's Child]

Nothing wrong with T-Bills. What these analysts are saying is that you don't want to own 10-year notes paying lot interest rates when interest rates go up 6-12 months from now. A 10-year note paying 3.5% interest won't look very attractive if/when the prevailing rate on new 10-year notes goes up to, say, 5.5%.

The government will keep paying the interest to you, but once you are locked in for 10 years you are basically losing out on a chance to get a better return.

[SonOfDarkSkies]

I was referring to the parenthetical note in the title and wondering if the author of that note might know something the rest of us didn't.

At one point in my career, I traded Treasuries and certainly agree that this is no time to buy Notes or Bonds.

[samadams2000]

Buy Silver

[yefragetuwrabrumuy]

The problem is not just limited to T-bills. If you look at just them, then you might imagine some way for the government to fudge its way out of this mess. However, T-bills are caught up in a general worldwide collapse of sovereign funds and bonds.

This means that not only can’t the US sell its T-bills, but the largest debt holders of existing T-bills start dumping them as well. Instead of any interest at all, there is a rush to sell to minimize losses. Bonds behave like Enron stock.

And because the T-bills back the dollar, internationally dollars will become worthless, even if they are just inflating, domestically.

The biggest way this affects the US is by a cutoff of oil imports, except for some commodity trade up front. At that point, the smartest thing the US can do is to default on its national debt. Though this means only limited imports for 20 years, it is the fastest way to recovery.

At the same time, there will be a whopper of an international depression, so there isn’t going to be any major change in the balance of power.

[Nervous Tick]

>> I’ve been watching too much football lately. I read the title as: “Get Out of Bounds Now...”

I wouldn’t worry about needing to get out of bonds; after all, won’t the clock stop when the market is first down and they move the option chains?

[Centurion2000]

At that point, the smartest thing the US can do is to default on its national debt.

And this is probably the primary reason Obama is in office, to prevent the USA from doing the smart thing.

[Nervous Tick]

Wow, THAT was depressing. Happy new year.

[Nervous Tick]

>> I agree it’s not a good idea to go “long” on any debt instrument, but what’s the problem with T-bills? If the gov’t reneges on bills, the country will collapse financially.

You have to park cash *somewhere*. I have mine in FDIC backed CDs, and also a li’l ladder of 4-week T-bills that (hopefully) ensure I’ll have weekly access to enough dough to keep things going just in case the banks go belly up and FDIC doesn’t pay right away.