Global economic jitters drive a shift back to ‘safety’ plays

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Wall Street’s summer holiday from fear may be over.

Investors today rushed out of U.S. stocks and into the perceived safety of Treasury bonds amid fresh concerns about the global economy and the financial industry.

Here’s something telling: The Treasury auctioned $10 billion in new 30-year bonds to raise money to finance the federal deficit, and investors couldn’t buy them fast enough.

‘The dealers I talk to were shocked by the demand,’ said Christopher Rupkey, financial economist at Bank of Tokyo-Mitsubishi in New York.

The annualized yield on the bonds: 4.61%.

That’s a good deal? It may be if you think most other investments are too dicey because of the rickety economy. And that seems to be an increasingly global theme, not just an issue in the U.S.

‘I think the bond market is showing global concern about the economic situation,’ said Tony Crescenzi, bond market strategist at Miller, Tabak & Co.

The latest survey of German business confidence showed sentiment had plunged to levels last seen at the end of the last recession in 2002.

In Japan, Prime Minister Yasuo Fukuda told Bloomberg News today that, ‘I myself feel the severe condition of the economy. The slowdown is becoming apparent.’

And in the latest downbeat report on the U.S. economy, the government said new claims for unemployment benefits surged last week to a six-year high, in part because of a federal benefits-extension program for jobless folks whose initial benefits had run out.

The economic news, and a mammoth quarterly loss reported by insurance firm American International Group, helped drive the Dow Jones industrials down nearly 225 points, or 1.9%, to 11,431.43 today. Some of the money exiting stocks piled into Treasuries.

The rush into government bonds also is a global event. In Germany, the yield on the 10-year government issue tumbled to 4.26% today, down from 4.34% on Wednesday and the lowest since May 23. In mid-June the yield reached 4.68%.

One more sign of the new fear factor: The dollar suddenly is a haven, at the expense of other currencies. The DXY index, which measures the dollar against six major currencies, rose for a fifth straight session today to its highest level since February.

The euro’s value tumbled to a five-month low of $1.532 from $1.542 on Wednesday, pushed down in part by comments from European Central Bank President Jean-Claude Trichet.

After the ECB left its benchmark short-term interest rate unchanged at 4.25%, as expected, Trichet as usual warned about inflation risks. But he added that ‘downside risks prevail’ for Europe’s economy.

That was an invitation to sell the euro, buy bonds and head back to the bunker.