In a secular bull market, strong investor sentiment drives prices higher, as participants, over time, are net buyers.
Secular markets are typically driven by large-scale national and
worldwide events... demographic/ population shifts,
governmental policies... bear market periods occur within
the longer interval, but do not reverse the trend.
There are still many reasons to buy the long bond, despite the lack of yield (nearly flat term structure of interest rates). Despite the recent credit ratings agency downgrades of U.S. sovereign risk, the T-bond offers greater relative security than many alternatives.
If Germany were NOT part of the EU, its government bonds would be issued by the Bundesbank, denominated in Deutsche Marks. German government bonds would probably be a better choice than the U.S. Treasury's 30-year bond.
Long-term maturity U.S. Treasuries are in demand by investment and portfolio managers because:
- They are used as hedges for arb strategies.
- Many fixed-income (bond) mutual funds and pension portfolios have maturity (or duration) requirements. Yield is not easy to find. Choices are limited to short-maturities or speculative "junk" bonds. To satisfy portfolio requirements for maturity length and overall risk, there are few alternatives to the 30-year long bond as a safe, liquid means of adjusting aggregate investment holdings, yet with low transaction costs.