Of course, these calculations don't take into account future income tax cuts, changes in government spending, or increases in inflation, bond analysts are quick to point out. Nonetheless, institutional investors, such as pension funds and large money managers, are making darn sure they've got plenty of Treasuries on hand as long as the supply lasts. Conventional wisdom among institutional bond managers is that about a third of their portfolio should be in Treasuries. But it's getting harder and harder to keep that percentage stable as the supply dwindles. Portfolio managers are paying higher prices for government bonds, which leaves them less money for investing in corporate bonds.
Institutional accounts have a tremendous anxiety about getting caught short in Treasuries.
Bond mutual funds have seen tremendous outflows since the beginning of the year. They're putting capital into developing online businesses. The ultimate extension of the new technology is that we're going to end up buying bonds and holding them to maturity because there will be nobody to make a market in them. Since 1998, Wall Street has been pulling back on bond trading as an unprofitable business. In the second half of 1999, several top investment banks reassigned staff from fixed-income to other areas because of drooping profitability.