Faber: Treasury Prices Will Collapse as Inflation Soars

Tuesday, 30 Mar 2010 10:03 AM

By Dan Weil

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Treasury bond prices will collapse, sending yields up to a range of 10 percent  to 20 percent during the next five to 10 years, as inflation and supply explode, says investment guru Marc Faber.

Treasuries have performed well so far this year, with the 10-year yield dipping to 3.64 percent from 3.85 percent at the end of 2009.

But with the Federal Reserve printing money like it’s going out of style, and the government issuing trillions of dollars in new bonds to fund the mushrooming debt burden, that rally will soon end, said Faber, editor of  "The Gloom, Boom & Doom Report."

"I still think that Treasuries are overpriced," he told CNBC.

Money printing represents a silent way for governments to default on their debt, Faber recently wrote.

When a government openly defaults on its debt, the workout process is reasonably equitable, with generally receiving 30 to 80 cents back on the dollar, he says.

"But if a government decides to default through money printing, the burden of the default isn't shared equally," he wrote.

Holders of that nation’s currency get hit worst, and that’s what will happen to dollar holders, Faber says.

The situation will push inflation-adjusted short-term interest rates below zero, he predicts.

While Faber is bearish on Treasuries, the Fed’s easy monetary policy has made others bullish

“The Fed meeting has boosted expectations that it will ease for a while, which is great for Treasuries,” Satoshi Okumoto of Fukoku Mutual Life Insurance told Bloomberg.

© 2014 Moneynews. All rights reserved.

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