Treasury Term Premium Hits Record Low

Today is shaping up to be a very ugly day. The S&P 500 is currently a bit off its low for the day, but that low was very, very low. The index bottomed at 1,140.13 and we’re at 1,153 right now. The bond market is slightly up for the day, and gold started to backslide at 11 am.

The real weak spot today is in the energy sector. The financials are also doing poorly. Watch the Financial Sector ETF ($XLF). It’s a speculative buy if it drops below $12 per share.

On our Buy List, Joey Banks ($JOSB) and Nicholas Financial ($NICK) have crawled into the black, plus a few other stocks look like they’re about to break into the money.

I’ve been saying that bonds are insanely expensive and now a Fed model agrees with me. The part of the yield curve where you’re paid more money to lend your money for longer term is the term premium. That’s at a record low.

A financial model created by economists at the Federal Reserve that includes expectations for interest rates, growth and inflation shows 10-year notes are the most overvalued ever.

As Treasuries hover near record low yields amid stagnant U.S. employment and lingering European debt concern, the so- called term premium, which Fed Chairman Ben S. Bernanke cited in a 2006 speech in New York as a useful guide in setting monetary policy, fell to negative 0.54 percent today, indicating the notes are expensive when compared with the average 0.84 percent for the gauge this decade through mid-2007. The term premium touched negative 0.55 percent on Sept. 2, the lowest ever according to Bloomberg data that begins in 1976.

Posted by on September 6th, 2011 at 12:51 pm

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