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ETF Specialist

Are Treasuries in a Bubble?

Before you look to burst a bubble, you need to understand the drivers.


The latest asset class to don the dreaded "bubble" cloak has been the U.S. Treasury market. As of this writing, the yield on the 10-year bond had dropped to 2.65%, a level that hasn't been seen since 1954. What makes this bit of trivia notable was that immediately following this period, the United States experienced one and a half to two years of deflation. This was also the last time that we had actual deflation in the U.S.

So what does all this mean? In terms of performance it means that year to date, the top-performing non-short exchange-traded fund is  iShares Lehman 20+ Year Treasury Bond (TLT). What the fund has given up in yield over the past year, it has certainly made up for with its 23% capital appreciation. As a quick refresher: When bond yields go down, their prices go up.

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Scott Burns does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.