Off the Cuff: Treasurys On The Rise

In this week's Off the Cuff podcast, Chris and Brian discuss:

• Treasurys On The Rise
  • Global capital is beginning to seek safe harbor
• Mispricing Risk
  • The biggest failing of today's markets
• The Ticking Sovereign Debt Timebomb
  • It's a questions of "when" not "if"
• The Supremacy of Risk Management
  • Should be the #1 focus of the prudent investor

This week, Chris welcomes back Brian Pretti for a follow-up discussion on global capital flows. Both take note of the current trend in rising Treasury bond prices.

A rise in Treasury prices (or, put otherwise, a decline in Treasury bond rates) can be interpreted as a signal of growing investor confidence; that the outlook for risk is improving. Of course, this seems difficult to swallow in an environment of escalating geopolitical tensions (Russia/Ukraine, China/Japan, China/Vietnam, etc), all-time high equity prices, bloated sovereign debt levels, and anemic GDP growth around the world.

Instead, Brian sees the rise as due to a growing paucity of options for global capital to find shelter in. Take Europe, for example. The spread between US and German bonds is so large now that US Treasurys offer a notably better return. Add on top of that the recent weakening of the Euro and the perceived appeal of Treasurys looks even better.

A quick glimpse at the stratospheric prices in fine art and the eye-popping escalation of real estate in London, New York and Silicon Valley, adds additional support to the theory that the flood of capital resulting from central bank liquidity programs is now flowing into hard and/or "safe" assets.