U.S. Treasuries Bubble: Beginning To Burst?

People have been calling a bubble in treasuries for at least a decade. The shocking result, especially to hyperinflationists, has been a stair-step decline in yields for 30 years. That's quite a long time. Here is a chart going back 20 years from Steen Jakobsen at Saxo bank in Denmark. Click on Any Chart in this Post for Sharper Image $TYX 30-Year Long Bond

Something's up. Everyone can tell. But nobody is quite sure what it is. Around the world, markets aren't behaving quite like they were just a week or so ago. Notably:

Economist Martin Feldstein has a piece up a Project Syndicate saying that interest rates are unsustainably low, and that there's a bubble just waiting to be burst in the fixed income world.

While the market will do everything in its power to forget yesterday's Hung Parliament outcome ever happened, and merrily look forward to today's Bernanke testimony (first of two) before the Senate, Europe is not quite so forgiving.

The title of fund manager and noted bear John Hussman's weekly note: "Capitulation Everywhere." After a steady grind higher in stock markets to start 2013, Hussman is feeling pretty lonely in the bearish camp.

More than two years ago, economists started talking about a bubble in Treasury bonds that would eventually burst, just as the dot.com bubble and the housing bubble had. If that happens, the prices of long-term bonds could fall by 10% to 20%. So far, that bond bust hasn’t materialized. But one of the characteristics of bubbles is that they often go on longer than anyone expects. What is most troubling now is that the problem is spreading beyond Treasuries. Excessive borrowing and ultra-low interest rates are now distorting all the debt markets.

Michael Johnston submits:With lingering uncertainty over the outlook for the global economy, safe havens have generated a tremendous amount of interest this year. While much of the attention has focused on gold and its continued run to new record highs, it is another asset class that has stolen the show in 2010. Long-term Treasuries have climbed steadily higher during 2010, defying the predictions of many “experts” and thriving on a wave of risk aversion.