NEW YORK (TheStreet) -- When did Wall Street economists and strategists start warning investors about a pending bond bubble due to the extremely low yield of the U.S. Treasury 10-Year note?To answer this question, I dug deep into the archives of my stories for RealMoney.com. Back on June 14, 2005, I wrote "No Bond Bubble, but Utilities May Puff Up." In the very first sentence of my story I stated: "Contrary to what some pundits claim, there can't be a bond bubble in the markets now." Here we are seven plus years later, and I continue to say essentially the same thing about U.S. Treasury yields. You cannot have a bond bubble because of low yields, but you can have a "yield bubble." The U.S. Treasury 10-Year yield rose to bubble territory between 1981 and 1986, as shown in the chart below courtesy of dshort.com.
Courtesy of Thomson/Reuters If you purchased TLT on June 17, 2005 at $93.50 and sold at $130.50 on Monday, July 16, 2012, you made a 37-point profit for a gain of 39.6%. For a U.S. Treasury 10-Year, you would have also made 4% in each year since June 2005. Compare this to buying the SPDR S&P 500 ETF at $120 on June 17, 2005 and selling it at $135 on Monday, July 16, 2012, which would make you a 15-point profit for a gain of 12.5%. Thus the bond ETF outperformed the S&P 500 by 27.1% over the past seven plus years. This occurred while many analysts and strategists told investors to avoid U.S. Treasuries as dead money.
Courtesy of Thomson/Reuters I am not saying that this trade will work today. The yield on the 10-Year U.S. Treasury is trading around 1.50% and my semiannual risky level is at 1.389%. Instead, I recommend booking profits on U.S. Treasuries and shifting to cash as your safety strategy. In my opinion investors are currently flocking into the U.S. 10-Year note at 1.50% because they are worried that U.S. stocks could crumble as they did between October 2007 and March 2009. The S&P 500 declined by more than 50% to a March 9, 2009 low. Keep in mind that Federal Reserve policy is encouraging a lower 10-Year yield and that the Fed may cause the U.S. economy to turn Japanese. On Tuesday, the Japanese 10-Year yield closed at 0.77%. At the time of publication, the author had no positions in any of the investments mentioned. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.