As the buying continues into the US Treasury market, I figured some perspective was in order today. If one believes like myself that the economy is not going into the tank but rather will muddle along, then this move in the 2 year is simply bubblicious....everyone I know is buying bonds at the moment and I am unsure what the flip side of this story will look like. As the chart shows, three instances over the past 15 years have occurred where the 2 year has outperformed or underperformed the banking Index (BKX). Each time the banks held in and the 2 year note had to play catchup to move back towards the mean or the banking index in this case. Thus from this chart, the 2 year is almost 100bps overvalued. A spiking 2 year probably won't be good for anyone buying here.
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