Investors’ continuing obsession with purchasing Treasury bonds is a sign of ‘irrational exuberance,’ says the chairman of investment manager T. Rowe Price when 10-year yields are under 2.0%.

Brian C. Rogers, the investment manager’s chairman and chief investment officer, said Tuesday that investors are showing an “irrational quest for safety,’’ even given the wide swings this year in asset values.

Those swings have been driven by events such as the European sovereign debt crisis, but most notably the August polarization of political parties in the United States that first failed to come to terms with the nation’s growing deficit and then resulted in the first-ever downgrade of U.S. debt by a major ratings agency.

That move led to four straight days of down, then up, then down, then up movement of more than 4% in stock values, he noted. Which has put investors on edge.

“People are terrified of risk, people are terrified of volatility,” he said.

But the yield on 10-year Treasury bonds closed Monday at 1.97 percent.

Blue chip stocks will produce a better yield, Rogers contended in a press briefing at the Princeton Club in New York. But he did not state a comparative number on what return could be expected.

But the ‘irrational exuberance,’’ which harkens back to a 1996 comment by former Federal Reserve board chairman Alan Greenspan that warned about speculative bubbles in marketplaces, around T-bonds remained. Indeed, after Standard & Poor’s downgraded U.S. debt in August, investors moved rapidly into the supposed safe haven of those same downgraded U.S. Treasury bonds.

This week’s failure of the bipartisan “supercommittee” to find any form of agreement on how to reduce the $1.2 trillion a year U.S. budget deficit will not alleviate investors’ fears, he said.

This shows “such a disturbing pattern of bipartisan inability” to deal with a serious issue thaf faces the country that it “doesn’t give you a lot of confidence,’’ Rogers said.

The firm’s chief economist, Alan Levenson, said there was nothing “super” about the committee’s performance and instead it represented a deeper slump than any batter in the history of America’s major league baseball leagues.

The Joint Select Committee for Deficit Reduction, he said, “went 0 for 1.2 trillion.’’

One result is “there’s a Treasury bubble,’’ said Michael C. Gitlin, director of fixed income for T. Rowe Price.

-- This article first appeared on Securities Technology Monitor.



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