DJ, I am a Treasury type of guy. My feeling about the bond market is related to the shenanigans of taking down debt to buy stock of the US corps. And the new found investment expertise of the local govts.
Basically, the Treasury's debt growth rate has wound down to next to nothing. Most new issues are just rollovers, not new cash. That means that the oversupply of new Ts no longer exists. Yes, there are still many in foreign hands, but I think that market is much stronger fundamentally than other dollar debt markets.
The US corporations are allowing their credit ratings to go into the crapper in the race to "maximize shareholder value and mgt. bonuses." The number of AAA and AA credits is down about 70% in the past 10 years. So, you have a situation where debt is not considered risky as long as the financial markets are always willing to roll it at a low rate. That willingness is starting to disappear and spreads to Treasuries are getting very wide. I expect more of the same, but much, much worse, when the BK hits. The downgrades from investment grade to junk will be a landslide.
Ditto for states and local govts. I wonder how many Orange Counties we are going to see in the meltdown? If the stocks go, they will be cash strapped to pay interest on their debt. BTW, take a hard look at MBIA and Ambac, who insure muni debt. These two outfits are very savvy and I've owned both in the past, but they could get killed in a BK situation.
I think that most financial people in other countries realize that we are in an asset bubble and that our dollar is too much in supply. The currencies of choice during a non-military meltdown are more likely to be Yen and Swissies, and, surprise, perhaps the Euro, not the dollar.
So, I see Treasuries doing o.k. from here or about 6.25%, but am very negative on corporate and muni debt. I love Swiss and Euro debt. |
