Bond Bubble Watch: Treasuries Jump on Housing Data

Amid chatter among market pundits and reporters about an emerging bubble in the market for U.S. Treasury securities, prices of government bonds are ripping higher today following this morning’s grim report on existing-home sales.

The yield of the two-year note, which correlates inversely with its price, today hit a record low, and yields on 10-year Treasuries dipped below 2.5% for the first time in more than a year.

U.S. government bonds are viewed as a safe haven from equities and can be used as a measure of fear and uncertainty in the stock market. The S&P 500 Index was lately down 1.1% at 1056.01 in early afternoon trading.

Investors are also showing concern about the Commerce Department’s second-quarter GDP figures due out Friday. Analysts on Wall Street are expecting an annual growth rate of 1.4%, significantly slower than the first quarter’s 2.4%.

After about a year of calm, the debate about whether or not we’re in a bond bubble has reemerged. Bill Gross and Warren Buffett were talking in bubble terms about T-bill performances during the chaos of fall 2008. Last week, Wharton finance professor Jeremy Siegel and WisdomTree’s Jeremy Schwartz wrote in The Wall Street Journal, “Those who are now crowding into bonds and bond funds are courting disaster.” We’ll see how long this rally in Treasuries can last before the pessimism party ends.

Bond Bubble Watch: Treasuries Jump on Housing Data