Tuesday, September 28, 2010

Record Low Real U.S. Treasury Yields

The demand for U.S. Treasuries because of their perceived safe haven status keeps pushing down the yields to increasingly ridiculous levels. The yield on 10-year inflation protected Treasury securities has dropped to a record low 0.67% today (as always, this number may have gone down or up by a few basis points when you read this), compared to about 1.5% in the beginning of the year and about 2% in the beginning of 2009 when nominal yields last reached the lows that we have seen today.

The situation is even more extreme for the 5-year inflation protected Treasury security, where the yield is now -0.14%, that's right a negative number. This is also a dramatic drop from about 0.5% in the beginning of 2010 and about 2.1% in the beginning of 2009.

Some investors are thus so desperate to invest in Treasuries, that they're willing to pay the U.S. federal government to borrow their money, instead of the other way around.

You can say a lot of things about bond markets today, but definitely not that they're rational.