Some income investors have gone plain nuts!

All markets experience periods of excesses. It looks to me as if we’re getting to one of these times with the fixed income markets.

The news item that led me to this post was about a foreign bond – ‘Mexico floats century bond in a hungry market’. An excerpt from the story;

MEXICO CITY, Oct 5 (Reuters) – Mexico launched its first 100-year bond on Tuesday, to win cheap funds from global investors who are snatching up risky emerging market assets that promise relatively-high yields.

The first tranche of the century bond attracted enough demand for an issuance of $1 billion, double the $500 million expected earlier in the day, a source close to the deal said.

The bond, which IFR reported was priced to yield 6.1 percent, will likely attract the eyes of institutional investors and become a valuable reference point for future debt sales from Latin America’s No. 2 economy.

“You don’t have anything paying 6 percent on the sovereign side right now,” said Klaus Spielkamp, a fixed income trader with Bulltick Capital Markets in Miami.

Wow! Lending money to Mexico at 6% for a 100yrs! Uhhh, hello credit risk, currency risk? Mexico, land of gang land drug wars and a few credit defaults?

To put this in context the 30yr US Treasury closed today at a yield of 3.67%. Or 20yr AA US Corp Bonds pay about 6%. No currency risk and probably better credit risk.

Or an example with a bit higher risk, you could go go out and buy the Ford convertible preferred (F-PS on Yahoo) which yields 6.25% at par and offers upside if Ford trades above a certain share price (I think $16). Credit risk? C’mon, remember Government Motors.

Now, I’m not one of those bond bubble guys. I agree with Dave Rosenberg, that yields in the US have further to fall and that there is a secular shift to a higher bond allocation taking place. He sees the 10yr note in the US going to 2%. But its a leap to go from there to pricing 100yr Mexican bonds at 6%.

Maybe there is no bond bubble, yet, but signs of excesses are certainly starting to show up.

Full Disclaimer - Nothing on this site should ever be considered advice, research or the invitation to buy or sell securities. These are my personal opinions only.

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