Treasury bond bubble: countdown is still on?

Treasury bonds have usually been one of the few less risky and more stable venues for investors. Most of these investors are typically not comfortable with the standard stock market. While treasury bonds have lower yields, they have long been dependable. The recent economic dilemma has spurred even more concerned citizens to buy into the treasury bonds market. This increase in purchase is called a treasury bond bubble and is based on fear of market direction as opposed to greed. The questions are: how long will the bubble continue?

First we have to understand what has caused the treasury bond bubble. In an effort to stimulate the market and get the economy engine moving, the U.S. Federal Reserve and Treasury Department have supplied higher than expected (or safe) doses of stimulus dollars. Combine that with the incredible lows of the stock market, the massive losses in many of the investments that people have experienced in the last couple of years and you have a situation change for treasury bonds from under pricing to overpricing.

People are racing to invest what is left of their cash in what they consider to be a stable investment. After all, the government has never defaulted on their loans, so this must be a good place to put their money. And, the bubble size increases.

In the last thirty years we have gone through a number of bubbles, from dot com to housing, we saw them all inflate to bloated conditions and, eventually burst. You would think that investors would have learned this lesson. In the case of looking for an area of safety, they have created another situation that has off set the market.

At the current time, the countdown is still on. The herd mentality hasn't made a big enough change yet to allow a slow deflation of the Treasury bond bubble. Since these are long term bonds, there are lots of people buying and very few being cashed in.

Keeping both eyes peeled to the daily investment grids are the only way to have an idea if the country and our investors are starting to feel more comfortable. Each week that passes is exhibiting more confidence in the market. Total confidence isn't there yet, and therefore the Treasury bond bubble is still quite inflated. Another indicator is the unemployment rate. Time still needs to pass to allow the newer companies to reach out and hire the people that they need to make their company profitable. These companies are also taking things slowly, as they watch their budget and keep staffing slim.

In a nutshell, the Treasury bond bubble will continue until the nation begins to have a more favorable outlook for a budget. Newer ecologically based and green technology companies are slowly bringing jobs and products to the world. This is increasing confidence and business. Patience is needed to wait out the governments borrowing deficit. In the past, 80 to 90 percent of the money needed to take care of our budget was covered by federal tax receipts, and the government only had to borrow the balance. Today, the government is borrowing 45 percent.

The information supplied in this article is not to be considered as medical advice and is for educational purposes only.