Families holding historically large amounts of U.S. Treasuries are creating a potential price bubble as concern about a double-dip recession spurs demand for assets perceived to be safe, according to Credit Agricole CIB.
“The household sector has been the surprise buyer, in part because this sector has normally been looked upon as equity junkies,” Credit Agricole strategists led by Luca Jellinek wrote in a note today. “A good indication of whether there is a bond bubble is whether the man on the street owns a lot more of an asset than is healthy.”
Federal Reserve Chairman Ben S. Bernanke will deliver a speech on the outlook for the U.S. economy today as some forecasters scale back projections. Deutsche Bank Securities Inc. economists have cut their estimate for growth this quarter to a 2 percent annual pace from 4.6 percent.
The yield on the benchmark 10-year Treasury note rose 2 basis points to 2.5 percent as of 6:42 a.m. in London, according to data compiled by Bloomberg. The 2.625 percent security maturing in August 2020 fell 5/32, or $1.56 per $1,000 face amount, to 101 3/32. The yield slid to 2.42 percent on Aug. 25, the lowest since January 2009.
“The householder is running historically high debt holdings and banks, pension funds, insurance companies and many others must feel debt-heavy,” London-based Jellinek said. They’ve “resigned themselves to low levels of return and a fairly deflationary environment,” with “paltry” growth of about 1 percent on average over the next 10 years.
Debt holdings, which include Treasuries as well as corporate, foreign and municipal bonds, constitute about 10 percent of families’ total financial assets, the highest since 1970, Federal Reserve and Credit Agricole data show.
Investors withdrew a net $7.1 billion from global tracked equity funds in the week to Aug. 25, and put some $5.2 billion into bonds amid concern U.S. and European economies are losing momentum, according to data published today by EPFR Global.
“Buyers are mostly parking cash to avoid losses rather than speculating to make vast profits,” Jellinek said. “If the bond market is bubbling, it’s because of fear of a renewed recession. There’s an incredibly large dose of pessimism in market prices.”