Tom McClennan notes that back in the good ol’ days yields on Treasuries were “compared to silly things like the inflation rate, dividend yields, mortgage rates, etc.”
More explicitly, he observes:
The key driver for valuing Treasury bonds at the moment is the utility they offer as a form of collateral among banks loaning money to each other. So with Europe’s debt markets in even greater turmoil now than when Greece’s debt got a “haircut” last year, T-Bond prices are zooming up once again to the top of the 3-decade rising trend channel.
When does this end? Tom’s guess is “when the Fed’s inflation of the money supply turns into actual consumer price inflation.”
Full-On Panic Into T-Bonds
McClellan Market Report, June 01, 2012