Today’s New York Times features a story by columnist James Stewart on the front page of the business section.  Titled “A Bond Market Plunge That Baffles the Experts,” the article quotes a number of “experts” who are baffled by the recent plunge in long-term U.S. Treasury bonds. Apparently the New York Times does not understand the bond market collapse any better than their experts.  As always, my data and methodology is transparent. Click here to download an Excel workbook that contains all data and the graphs for this article.  (The file is Excel 2007 format.)

A little work with the FRED database at the St. Louis Fed gave the following results:

30 year Treasury Inflation Protected Securities yields

30 year Treasury yields

Ten Year Treasury Yield

Notice anything interesting?  Yields on both the 10 year and 30 year Treasuries rose.  And the yield on 30 year TIPS also rose.  In fact, starting on May 10 the 30 year TIPS yield was positive for the first time since August 24, 2012.  That’s 37 consecutive weeks with negative TIPS yields.

My first thought was that the markets were expecting inflation to heat up.  But that would mean a shift out of conventional Treasuries into TIPS.  The rise in TIPS yields tells me that’s not true.  Funds are being pulled out of all long-term Treasury securities.  While it’s interesting to ask where these funds are going, that’s not the important question.  Investors are fleeing U.S. government securities.  Perhaps it’s time to revisit the Rogoff – Reinhardt hypotheses.  I don’t have time to separate the privately-held debt from the total.  But the federal debt passed 100 percent at the beginning of 2013 and is still rising.  Perhaps buyers are getting nervous.

Debt to GDP Ratio