My toxic Treasuries – and why I'm rooting for a default

Department of Treasury seal

Occasionally, I purchase U.S. Treasury securities, if only to keep from forgetting how.

For example, I bought two seven-year Treasury Notes for the Individual Retirement Account at my brokerage earlier this year.

With yields of 2.74% and 2.85%, they were intended as “hold-to-maturity” investments. I expected to take a quick market value hit.

But I didn’t. In fact, the Notes increased in value — so much so that I’ve just sold them and pocketed the profit.

To my distorted way of thinking, those Treasuries had become toxic.

I’m primarily a CD investor, seeking current income. For me, rising Treasury prices are bad because they signal a continuation of my increasingly fruitless search for good CD rates.

I’d hoped that Treasury yields would gradually rise in 2011, as quantitative easing lurched and stumbled to a well-deserved midyear demise. CD rates would soon follow, I thought.

Sadly, it hasn’t happened that way.

It seems that every time Treasury yields are about to trend upward, something comes along to reverse the process. Just as the bond bubble appears about to burst — or at least leak a little — the market manages to keep it inflated.

Consider the three-year Constant Maturity Treasury (CMT) rate.

According to the Treasury Department, the three-year CMT rate began the year at 1.03%. It hit a high of 1.41% in mid-February, only to plummet to 0.98% barely a month later.

It managed to creep back up to 1.36% in early April but has been falling ever since. On June 3, it was a truly pathetic 0.75%.

I fully understand that, from one trading day to the next, different factors will affect Treasury yields in different ways.

But, to a psyche bashed by paltry returns, all these factors taken together invariably produce the same result — higher Treasury prices and lower yields.

The main culprit in all this, of course, has been the Fed, with its godawful QE2.

Treasuries have also been impacted by geopolitical events, from the Arab Spring to the Japan earthquake to the European debt debacle, which have produced, periodically, a yield-killing “flight to safety.”

And, right now, the market is worrying about double-dip recession and deflation again.

Enough! Whatever the causes of this insidious decline in yields, I want them stopped immediately.

I want to lose money on my Treasury purchases for a change.

Now, if Washington would only default on its debt.

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