Treasury Bond Blues
Research for Online Investors

by John Dalt

6/03/09

It is time to issue my monthly warning about Treasuries. I have sounded the clarion to sell Treasuries since January. If you own Treasury bonds, they are becoming worth less every time the interest rates increase.

Treasury bonds can have a place in your portfolio, but the interest rates paid for the last six months have priced them too high.  You will avoid a capital loss if you hold to maturity, but would sell at a discount today, and even more as interest rates rise.  Do you want to hold a bond paying 3% for the next ten years when inflation hits double digits, and new issues pay 8% or more?

I talked to George at First National Bullion today, one year ago Treasury auctions would be for ten to fifteen billion dollars per month.  Last week, the U.S. Treasury auctioned $101 billion dollars in bonds!

There is demand, but not enough for the amounts the treasury has to sell to cover the $1.8 trillion in deficit spending. The government now borrows almost fifty cents out of every dollar spent! When investors gain confidence in stocks, they will move back into stocks and away from the security of bonds.  This will cause interest rates to increase quickly.  Bond holders are playing a game of Russian Roulette.

Fed Chairman Ben Bernanke appeared before the House Budget Committee today.  In opening comments he said, “Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth.”   Congress is spending more money, and Bernanke is buying treasury bonds to hold interest rates down.  The music plays on….

GM and Chrysler appeared before the Senate Commerce Committee late today, along with representative dealers that have received notices of termination in their restructuring plans.  It appears that the closed dealer list has been haphazard and subject to lawsuits.

The clean quick bankruptcy of GM may only be a dream.  There are rumors of lawsuits challenging the constitutionality of the executive branch entering into the bankruptcy process.

The market sold off today, but buyers came out late and bought the dip. Oil, precious metals and base metals were big losers as the dollar strengthened.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

MarketToday Home Page

Back to Top