Money has poured into Treasuries even as U.S. budget deficits totaled $1.4 trillion in fiscal 2009 ended Sept. 30, $1.29 trillion in 2010 and $1.3 trillion in 2011.
Rising deficits and debt led Taleb, the distinguished professor of risk engineering at New York University, to tell investors in February that the "first thing" they should do is avoid Treasuries, and the second shun the dollar. At the same conference a year earlier he said "every single human being" should bet against U.S. government debt.
Since February Treasuries have rallied 7.99 percent and the currency has gained 3.2 percent, beating 14 of its 16 most actively traded peers, according to Bank of America Merrill Lynch indexes and data compiled by Bloomberg.
Concerns about inflation have also abated. Consumer prices, excluding food and energy, rose 0.05 percent in September, the smallest gain since October 2010, the Labor Department said Oct. 19 in Washington. Yields on bonds that protect investors from rising consumer prices suggest the fixed-income market anticipates inflation will average to 2.15 percent over the next decade, down from expectations of 2.67 percent in April.
"The Fed is legally obligated to do everything in their power to keep unemployment low, and they have and will continue to do so," said Chris Low, chief economist at FTN Financial in New York. "As long as inflation isn't a concern the Fed is going to keep firing until something happens," Low said in a telephone interview Oct. 21.
Low was one of three economists in a Bloomberg survey of 72 forecasters in January to predict that 10-year Treasury yields would trade below 3 percent this quarter.
Fed policy makers, who meet this week, have signaled that they are considering more measures to boost the economy, after holding the target rate for overnight loans between banks at zero to 0.25 percent since December 2008 and expanding its balance sheet to a record $2.88 trillion.
Vice Chairman Janet Yellen said Oct. 21 that a third round of large-scale securities purchases might become warranted. Last month, policy makers said they would replace $400 billion of short-term debt with longer-term Treasuries in an effort to contain borrowing costs.
"The Fed's hope is that by pushing down Treasury rates, all other rates will follow," Jay Mueller, who manages about $3 billion of bonds at Wells Fargo Capital Management in Milwaukee, said in a telephone interview Oct. 26.
"As a portfolio manager who has been in the business 30 years, it's hard to come to terms where interest rates are, but you have to come to terms with it," Mark MacQueen, who oversees bond investments at Austin, Texas-based Sage Advisory Services Ltd., which manages $9.5 billion, said in an Oct. 26 telephone interview. "And when you look at what stocks have done this decade it becomes much easier."