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Treasury bonds reflect market worries

Posted on: Friday, 12 December 2008, 15:06 CST

Returns on U.S. Treasury bonds have skyrocketed this year, as investors have flocked to the market backed by the U.S. government.

Merrill Lynch & Co. chief North American economist David Rosenburg said the market for government bonds had reached a bubble with prices unrealistically high due to overwhelming demand.

Returns on 30-year U.S. Treasury bonds hit 27 percent this year, while 10-year and two-year Treasury bonds have hit 12.6 percent and 5.8 percent, respectively, The Dallas Morning News reported Friday.

While demand has soared, yields have collapsed. A recent Treasury auction found demand for short-term bonds with zero yields.

Investors want to ride out the storm in Treasuries, said Howard Simons, a bond strategist at Bianco Research.

Demand acceleration came when the government started pushing money in the banking system, in November, said Mac Pado, a market analyst at Cantor Fitzgerald.

When money from the $700 billion financial bailout bill started reaching banks, the banks turned to buying government bonds, to improve their debt-to-equity ratios, Pado said.

And it's not just U.S. banks, but banks in Asia and Europe are trying to recapitalize too, and they are buying U.S. Treasuries, he said.

Source: United Press International

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