time to get out of treasuries ?

Bond genius bill gross is reducing his exposure to treasuries. In his post (Jan 2010), he explains that Treasury yields are too low, and that the Fed has been buying up too much of them. (Same deal for the Bank of England buying gilts). Gross is expecting a drop in treasury prices soon, especially since the Fed is plotting its exit strategy (i.e. selling its Treasury holdings). (See also Jubak's post on Gross' moves and comments)

More generally, there appears to have developed a supply and demand imbalance for government bonds. The supply has gone up due to various bailouts, but empty pockets are lowering demand. This should mean that gvt bond auctions won't attract that many buyers, meaning low prices and higher yields. To prevent that, central banks, like the Fed, have been buying up their own national bonds. It can't go on forever. When it stops gvt bonds prices will drop.

Gross suggests TIPS (real return bonds) might be an option because these mega deficits will result in inflation, but TIPS yields are really low too. According to bloomberg, the yield on a 5 year TIPS is 0.17%. Yuk.

Why TIPS/TIIS/Real Return Bonds Have Fallen so Much

Interesting article from morningstar explaining that hedge funds were borrowing short to buy TIPS long. So when the credit dried up, they had to sell TIPS to pay back their loans (i.e. deleverage). The consequence being that the price of the bonds really dropped. A similar phenomenon is also undoubtedly occurring with share prices.

I remember a similar thing happening to long bonds when the yield curve reversed, in the 90s I think it was. That's why I think it's better to buy bonds and hold them to maturity, especially G7 government bonds, for which the risk of default is pretty non-existent.