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Is the Safe-Haven Government Bond Bubble Finally Bursting?

Government bond yields under 10 years for safe-havens are close to zero. In April 2013, even 20 year bond yields are less than 3%, What can explain this bubble of the century?
By August 2013, however, the first bubble, the Treasury Bond Bubble is popping.


Update August 16, 2013:

The burst of the US Treasury bubble continues and PIMCO is selling:

So, 10-year Treasury yields have ended the day closer to 3 per cent. But not as close as they were at about 8:30am New York time.

Though the afternoon recovery may generate some relief for fixed-income investors, with the US labour market data improving, few will confidently predict that yields won’t head higher still this year.

Here are three charts (courtesy of Bank of America) that will give bond bears cheer and those who believe yields are near their peak some pause for thought.

1, The Federal Reserve really has been a huge buyer of bonds over the last three years (see chart one), which compares the central bank purchases with those of private investors.

2, Flows into mutual bond funds have been substantial since 2009, eclipsing flows into equity funds. That pattern is changing (see chart two).

3, It’s not just China that is a big foreign buyer of Treasuries. Brazil, Russia and India [and the SNB] have been, too, (see chart three) as central banks have recycled growing volumes of foreign-exchange reserves into Treasuries. With investment flows into emerging markets slowing, reserve growth and the need to buy Treasuries should too. (source FastFT)

An addition to point 3) With talks about Fed tapering, currencies of emerging markets are weakening, examples are the Brazilian Real. Central banks are intervening to stop rapid depreciation. They sell US Treasuries to obtain liquidity.

Update June 20, 2013:

With the potential “tapering” by the Fed, things start to normalize again a bit.
German 30yrs: 2.46%, UK gilts 30 rs: 3.46%, US 30 rs: 3.48%, Japan 1.86%

Government Bond June 20

The Biggest Bubble of Century: Government Bond Yields

Update April 24, 2013: (now with 30 years instead 20 years !!)

German Bunds 30 yrs. 2.19%, UK Gilts 3.04%, US Treasuries 2.90%, Japan JGB 1.60%

20 year bond yields

Update February 23, 2013:

With the exception of Japan, yields of safe-haven countries are up 10-20% (see inflation as one explanation for higher yields) , while Italian ones are stable.

UK gilts 3.04% (despite recent downgrade), German Bunds 2.32%, Japan JGB 1.73% (still no sign of inflation or Japan bears), Switzerland 1.21%, Italy 4.43%


Update December 26, 2012:

UK gilts 2.77%, German Bunds 2.16%, Japan JGB 1.75%, Switzerland 1.00%, Italy 4.41%

Japanese JGB yields rise in line with Swiss ones, in response to potential higher inflation, but no signs of changes of default.


Update December 07, 2012

UK Gilts 2.68%, German Bunds 2.13%, Japan JGB 1.65%, Switzerland 0.87% and even Italy 4.59%.

Government bond yields are at record-low levels from an historical perspective.

Since 1960 Treasury Yield Chart

10 yr. US Treasury Yield Chart Since 1960


(click to expand)

Longterm chart US Treasuries

Government Bonds Real Yields 1970-2011

How can investors judge today how the global economy is going in 20 years?


There is too much fear around, there is too much money around that goes into unproductive safe-havens like government bonds. See the investor letter of Kyle Bass, CEO of one of the most famous hedge funds, Hayman Capitals.

One day, employees want also a piece of the cake (see PIMCO’s Bill Gross), they will not leave the profits just to the share holders. These employees will not only be Chinese workers, that will start being consumers. They will push up European and American inflation via the back-door of imported goods. Due to aging issues also European and Americans whose wages will rise. Germany is one of the protagonists of this tendency, nominal wages increased by 3% and more in the last two years.


Wage inflation and important sovereign defaults will come, aging and the smaller and smaller gap between established and developing countries will enforce it. It is a just a question of when. History shows that both wage inflation and the simple fear of sovereign defaults can lead to self-fulfilling prophecies.

Aren’t states allowed to default any more?

Spain defaulted on its debt six times in the eighteenth century, and seven times in the nineteenth century. At the time, a default was a lot easier than pressing out higher and higher taxes. Argentina has issues with its default still today


More data

By July 2013, government bond yields of European safe-havens have risen compared the rates of July 2012, but the ones of crisis countries decreased:

ECB Long-Term Interest Rates July 2013 Convergence Purposes

Click to expand, source ECB


By December, 2012 the tendency to negative interest rates had even intensified. Swiss 20 years government bond yields were at a yield of 0.87%.

Swiss 20 yrs. December 7, 2012


The following was the data as of July 18th 2012, at the height of negative interest rates for safe-havens.

Government bond yields under 2%

Government bond yields under 2% (as of July 18th)


The following table from Bloomberg shows central bank after inflation (real rates) compared the government bond yields and the CPI as of October 2012.

Global Bond Yields, End November 2012



Links: Government Bonds on Financial Times and on Forexpros

Marc Faber’s comments on the treasury bubble



George Dorgan,

Disclaimer: The opinions expressed above are not intended to be taken as investment advice. It is to be taken as opinion only and we encourage you to complete your own due diligence when making an investment decision. Even if we often write about Forex trading, our advices aren't written for day traders who follow technical channels, but rather for mid- and long-term investors. Our aim is to show discrepancies between fundamental data and current asset valuations, which can lead in mid-term to an inversion to technical channels.

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