“I’m forever blowing bubbles, pretty bubbles in the air. They fly so high, nearly reach the sky.”

So goes the refrain of a 1918 hit tune. It could have been the theme song of investors piling into the U.S. Treasury market for the past six weeks.

Investors are so eager to escape the jaws of the credit crunch that on Dec. 9 they drove the three-month Treasury bill rate to negative territory for the first time since 1929. The same day, the Treasury sold $30 billion of four-week bills at a rate of zero percent.

Meanwhile, on Dec. 24, the 10-year U.S. Treasury note was yielding 2.18 percent, compared with 4.08 percent six months ago.

The flight to U.S. Treasuries is an Armageddon trade. It reflects investors’ panicked attempts to seek safety amid plummeting stock markets, collapsing property values and more than $1 trillion in losses and write-offs by banks worldwide.....

U.S. government debt is gaining favor with a group of investors who lowered their exposure to Treasuries in nine of the past 11 years -- American citizens.

Merrill Lynch & Co. says U.S. bonds owned by individuals likely will account for 2 percent of households’ financial assets by 2013, up from 0.2 percent now. That level hasn’t been hit since the months following the Sept. 11, 2001, terror attacks, Federal Reserve data show. Americans’ direct purchases will rival the $1 trillion foreigners probably will buy in the next five years, Merrill predicts.

Increased demand, fueled by the highest U.S. savings rate in seven years and record domestic stock and real estate losses totaling $13.5 trillion, will support Treasury prices, said Tony Crescenzi, chief bond market strategist at Miller Tabak in New York. That will help keep yields and consumer interest rates down even as the government borrows record sums for President Barack Obama’s $787 billion stimulus plan.

“We are going back to the days of ‘Leave it to Beaver,’” said David Rosenberg, Merrill’s chief North American economist. “Caution and prudence will be the order of the day.”

At the end of 1957, the year Jerry Mathers debuted in the TV show’s title role as Theodore “Beaver” Cleaver, U.S. individuals held more than 2 percent of their assets in Treasuries, according to Fed statistics that exclude bonds in mutual funds.....

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said Treasuries “have little value” because of the growing U.S. debt burden.

The U.S. has unrecorded debt of $75 trillion, or close to 500 percent of gross domestic product, counting what it owes on its bonds plus obligations for Social Security, Medicare and Medicaid, Gross wrote in his monthly investment outlook. The U.S. will experience inflation, currency devaluation and low-to- negative interest rates after accounting for consumer-price gains if it doesn’t reform its entitlement programs, he said.

Pimco “has been selling Treasuries because they have little value within the context of a $75 trillion total debt burden,” Gross wrote in the report published on Newport Beach, California-based company’s website. Congress “must make ‘debt’ a four-letter word.”

The comment echoes Warren Buffett, the billionaire investor who recommended avoiding long-term fixed-income bets in U.S. dollars because the currency’s purchasing power will drop. Treasuries have handed investors a 0.1 percent loss this quarter, adding to a 2.7 percent decline in the final three months of 2010, based on Bank of America Merrill Lynch data.

President Barack Obama’s government has increased the U.S. publicly traded debt to a record $9.05 trillion, leading Gross to compare the nation to Greece, which had its credit ratings cut two steps by Standard & Poor’s on March 29.

“We are out-Greeking the Greeks,” he wrote.....

By Andrew McCormick

NEW YORK (TheStreet) -- Contrary to very popular opinion and in conjunction with their 30-year bull market, buying U.S. Treasuries could be the best investment of 2011.

Few times in history has an investor been able to invest with a major trend and simultaneously be a contrarian. When these opportunities arise, they must not be passed over. This means seriously considering funds such as the Vanguard Long-Term Treasury Fund(VUSTX_), iShares: Barclays 20 Plus Years Treasuries(TLT_), ProShares Ultra 20+ Year Treasury(UBT_) and Direxion Daily 30-Year Treasury Bull 3X Shares(TMF_).

This investment opportunity holds three major drivers. First, U.S. Treasuries hold the benefit of a safe haven during a stock market decline and periods of uncertainty; if they naturally resume their upward trend, any market sell-off could accelerate the upward move.

Second, they remain in a massive 30-year bull market; major bull markets tend to continue further than expected and well past traditional valuations. Finally, buying U.S. Treasuries is a major contrarian play; an overwhelming majority of analysts and fund managers loathe this asset. Rarely does an investor see an opportunity with so many factors simultaneously available: the synergy aspect could be impressive.

This investment view on Treasuries isn't common. Often professionals and amateurs alike state the following reasons why a continuation of low rates and a Treasury bull market are impossible: Government bonds are in a bubble, inflation is just around the corner; the government is a debt junkie with an out-of-control deficit; and the U.S. dollar is going to devalue into oblivion.

The data these bond bears lean on isn't necessarily wrong: They just have the timing incorrect. At some point interest rates will absolutely rise for a prolonged period. It just won't be right now. So, I don't disagree with the critics; I disagree with their ability to time the trade...

By Cordell Eddings
Oct. 31 (Bloomberg) -- The biggest bond gains in almost a decade have pushed returns on Treasuries above stocks over the past 30 years, the first time that’s happened since before the Civil War.

Fixed-income investments advanced 6.25 percent this year, almost triple the 2.18 percent rise in the Standard & Poor’s 500 Index through last week, according to Bank of America Merrill Lynch indexes. Debt markets are on track to return 7.63 percent this year, the most since 2002, the data show. Long-term government bonds have gained 11.5 percent a year on average over the past three decades, beating the 10.8 percent increase in the S&P 500, said Jim Bianco, president of Bianco Research in Chicago.

The combination of a core U.S. inflation rate that has averaged 1.5 percent this year, the Federal Reserve’s decision to keep its target interest rate for overnight loans between banks near zero through 2013, slower economic growth and the highest savings rate since the global credit crisis have made bonds the best assets to own this year. Not only have bonds knocked stocks from their perch as the dominant long-term investment, their returns proved everyone from Bill Gross to Meredith Whitney and Nassim Nicholas Taleb wrong......

By Susanne Walker and Anchalee Worrachate Dec. 5 (Bloomberg) -- Funding next year’s $1.3 trillion U.S. budget deficit may get a boost from Germany as bunds underperform Treasuries for the first time since the European debt crisis began in 2009.

While the U.S. needs to double bond sales to investors after the Federal Reserve reduced purchases, Treasuries due in 10 years or more are 2011’s best-performing sovereign securities, returning 26 percent as of Nov. 30, according to Bloomberg/EFFAS indexes. German 30-year bunds yielded more than their U.S. peers last month for the first time since May 2009 as the government was only able to find buyers for 65 percent of a 6 billion euro ($8.1 billion) offering on Nov. 23, its worst auction in 16 years.

Germany may be stripped of its AAA credit ratings as 15 euro-zone nations face downgrades by Standard & Poor’s as the region’s debt crisis deepens, underscoring the relative safety of and growing demand for Treasuries even as fixed-income measures show U.S. debt is about the most expensive on record. Bunds, Europe’s fixed-income benchmark, yielded a record high relative to Swedish bonds on Nov. 25, as the euro-region’s debt crisis begins to infect even the most stable economies.....

By LAWRENCE GOODMAN

The conventional wisdom that nearly infinite demand exists for U.S. Treasury debt is flawed and especially dangerous at a time of record U.S. sovereign debt issuance.

The recently released Federal Reserve Flow of Funds report for all of 2011 reveals that Federal Reserve purchases of Treasury debt mask reduced demand for U.S. sovereign obligations. Last year the Fed purchased a stunning 61% of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis. This not only creates the false appearance of limitless demand for U.S. debt but also blunts any sense of urgency to reduce supersized budget deficits.

Still, the outdated notion of never-ending buyers for U.S. debt is perpetuated by many. For instance, in recent testimony before the Senate Budget Committee, former Federal Reserve Board Vice Chairman Alan Blinder said, "If you look at the markets, they're practically falling over themselves to lend money to the federal government." Sadly, that's no longer accurate.

It is true that the U.S. government has never been more dependent on financial markets to pay its bills.....