Is the bond bubble bursting? In just two days ending January 2, 2009, the 30-year U.S. Treasury Bond futures contract for March 2009 dropped from a high of about 141.00 to 135.00 or 600 basis points. Each 100 basis points equals $1,000, so the price has dropped $6,000 in two days. The question is, is this the bubble bursting or is this just a correction in an overbought bull market?

There is an old adage: "stocks up, bonds down." In the same two-day period ending January 2, 2009, we saw the March 2009 Dow futures contract go from 86.35 to 90.15 or about 400 points.

As I've said, the stock market does not always mirror reality. On Friday, January 2, 2009, we saw a headline that read New orders sank to their lowest level in 60 years, yet the market rallied 258 Dow points. As you can see, pure logic does not always work. Very often the market moves on perception, not facts. Are investors perceiving that the economy will get better in 2009? And are they trading on that perception? Is some money coming out of bonds and moving into stocks?

There are a host of other questions you might ask, but for now: "stocks up bonds down."

What are your thoughts?

Is the bond bubble bursting? originally appeared on BloggingStocks on Sun, 04 Jan 2009 16:40:00 EST. Please see our terms for use of feeds.