Transcripts

"Two Ways To Play"-Kevin Depew of Minyanville

SUSIE GHARIB: It's said that there are two sides to every story. So tonight, we get two views on the plunge in yields on U.S. Treasuries. In tonight's "Two Ways to Play," here's Minyanville's Kevin Depew and Kevin Depew of Minyanville.

KEVIN DEPEW, EXECUTIVE EDITOR, MINYANVILLE.COM: Yields on U.S. Treasuries have now fallen to levels once thought unimaginable. The 30-year Treasury bond is now yielding about 3 percent. Adjusted for inflation, that's practically nothing. So what's going on here? Are government bonds the next bubble? The answer quite possibly, is yes. At current yields, speculators in Treasuries are simply betting on the greater fool theory: that more people will continue to buy Treasuries because -- well, more people will buy treasuries. That leaves just one very small exit in the theater should somebody yell fire. While it is true that Treasuries, if held to maturity, remain practically risk-free, who wants to basically give the government the money for free? Well, for once I agree with myself at least the part about giving the government my money. But while a 3 percent yield sounds scary, this is a story of risk aversion. Both the labor market and wages are currently deflating at a rapid rate. What we are experiencing is a deflationary debt unwind where nominal interest rates are virtually meaningless. Eventually inflation may become a problem and interest rates may go up, but for now, there isn't a bubble in Treasuries. There's an anti-bubble in risk.