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Market Commentary Are treasuries the next bubble to burst?
Are treasuries the next bubble
to burst? Yields are at all time low across the entire credit spectrum. There are talks the Treasury
will issue 100 year bonds to fund the growing massive deficit, partially the result of the current credit crisis.
Similar to the 100 year maturity
Disney and Coca Cola bonds issued about 15 years ago, pension funds and insurance companies would be the likely purchaser of this debt given the perceived security and interest
payments viewed as an annuity payment. It should be noted that both issuances were met with strong demand.
It is thought the new “100
year” would begin to pay down principal beginning in the fifty first year. Today all treasuries pay in full at maturity.
How quickly could the Treasury
create such a bond? I believe once fear levels begin to recede, treasury prices could plunge perhaps sending the 10-year back to a 4% “handle” up
from the current 2.65% yield. As written many times it is not change that frightens me but rather the velocity of change.
Speaking
of which, oil closed yesterday at $46.92/barrel. Two months ago it was $100 barrel and five months ago it was $147 with many believing $200
all but inevitable by December 31.
What is the probability that
the treasuries get crushed, corporate bonds stage the mother of all bond rallies as fear begins to subside? As already discussed everyone owns
treasuries, indiscriminately selling all other debt instruments.
Yesterday equities staged a
handsome advance. Is it sustainable? The ongoing volatility is unnerving and I think all would
welcome a period of low volatility.
Last night the foreign markets
were mixed. London was down 0.70%, Paris down 1.38% and Frankfurt down 1.43%. Japan was up 1.79%
and Hang Sang up 1.36%.
The Dow should open moderately
lower on economic concerns. The 10-year is off 15/32 to yield 2.73%.
Kent Engelke
Chief Economic Strategist/Managing
Director
Capitol Securities Management
804 612 9707
The information is the personal views of Kent Engelke and is not necessarily indicative of those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed here are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. Capitol Securities Management, Inc. is a Mid-Atlantic based, privately owned brokerage and investment firm with branch offices in Mclean and Richmond, VA, Boston MA, Hickory, NC, Florham Park, NJ and Tampa, FL. Capitol employs over 170 fulltime investment professionals and independent affiliates in locations from New England to Florida and has been serving the needs of its investors for over 25 years. It is a member of FINRA and SIPC. © Copyright 2008 Capitol Securities, Inc. All Rights Reserved. |
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