The huge rally in Treasury bonds, which has sent the two-year yield to a record low, doesn’t represent a bubble, says Dennis Gartman, editor of the Gartman Letter.
“I’m not sure it’s a bubble at all,” he told Bloomberg. “I think this is a tectonic plate shift that has occurred.”
The shift is one toward savings and safety in the wake of the financial crisis, Gartman says.
“The savings rate in the U.S. may be only 5 to 6 percent in the aggregate, but the rate in the 58-65 age group is probably 15 percent.”
The overall savings rate hit 6.4 percent in June.
Investors have turned to Treasuries amid concern about slowing growth in the U.S. and global economy.
“They’ve been burned by problems in 401(k)s,” Gartman said.
“They’re going to continue to be reticent about investing in equities and will continue to be supportive about owning the safest of all investments – Treasury securities.”
While it’s amazing that Treasuries yields have dropped so low — the 10-year yield recently stood at 2.63 percent — that’s not the sign of a bubble, Gartman says.
Investment guru Jeremy Siegel disagrees. He says a bubble is indeed brewing and that investors will pay the price.
"Just as investors were too enthusiastic (in 2000) about the growth prospects in the economy, many investors today are far too pessimistic," he and Wisdom Tree research director Jeremy Schwartz wrote in The Wall Street Journal.
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