Why the Treasury Market is Headed for Collapse

The “Most Overpriced, Oversupplied, Over-owned Market in History”


Michael Pento, president of Pento Portfolio Strategies, believes the U.S. Treasury market is a massive bubble destined to pop with devastating consequences.

Unlike most, Pento is willing to put a timeline on when he believes the bond bubble will burst, which is the theme of his not-so subtly titled new book: The Coming Bond Market Collapse.

Sometime in 2015-16, foreigners creditors will conclude with a high degree of confidence “’it’s impossible the U.S. will ever pay me back in real terms and I demand a higher interest rate,’” he predicts. “It will be just like Greece.”

For individual investors, his advice is simple: “avoid Treasuries like the plague.”


Treasury 10-Year Yield at Lowest This Year on Fed, Auction Sizes

Treasury 10-year yields traded at the lowest level this year on bets the Federal Reserve will affirm its commitment to the pace of bond purchases to support growth and as the U.S. said it may reduce debt-auction sizes.

“Over the past two months, we’ve started to see economic data slow down; It’s full speed ahead on QE,”

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The U.S. Treasury Department said it plans to sell a floating-rate security as early as the fourth quarter this year and signaled it may decide to “gradually” reduce the supply of notes and bonds at auction.

With a budget deficit of more than $1 trillion last year, the Treasury needs to expand its base of investors. So-called floaters may appeal to those who are seeking to protect themselves from a possible increase in interest rates or faster inflation stemming from the Federal Reserve’s unprecedented monetary stimulus.


Is the Fed Monetizing Government Debt?

Under this latter scenario, the Fed is not monetizing government debt—it is simply managing the supply of the monetary base in accordance with the goals set by its dual mandate.


On June 3, 2009 Fed Chairman Ben Bernanke said the Fed would not monetize our debt. On November 3, 2010, the Fed announced the printing of $600-900 billion in new currency to purchase bonds/debt. You might be interested to know that the current world money supply of US dollars is $800 billion. The Fed just said it is going to double that. Printing money to buy debt is “monetizing the debt.” America, we are screwed.


Hard Eight


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