Treasury Bonds

Einstein famously quipped that the most powerful force in the universe was compound interest.  An equally powerful force is reversion to the mean, or average.  As discussions go on in Washington about raising the debt ceiling, let’s look at the $8+ trillion dollars of Federal Debt held by private investors.

How much more debt can investors buy?  Since the financial crisis of 2008, investors have gobbled up federal debt just as they gorged on mortgage debt in the years previous to the financial crisis.  Below is that same data with a 10 year moving average, showing just how far above the average federal debt has climbed.

As the Euro-Debt crisis continues to unfold, investors keep lining up to buy Treasury bonds that pay little in interest but offer some perceived refuge for their money.

Below is an ETF, SHY, that tracks the Barclays Short Term Treasury Bond index.  It is close to all time highs, leaving little room to move up and plenty of room to move down as demand for the safety of Treasury Bonds eventually returns to its average.

Bubbas get caught up in bubbles.  Eventually – maybe not this month or the next six months – investors will want to sell some – or a lot – of these Treasury Bonds.  When that happens, watch out below. 

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