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Treasury bond yields hit new lows on economy fears; gold tops $1,300

September 28, 2010 |  1:43 pm

Fresh fears about the economy drove investors and traders back into Treasury bonds Tuesday, sending yields to new lows.

Gold, meanwhile, closed above $1,300 an ounce for the first time, also benefiting from renewed jitters over the global economy and from another slide in the dollar.

The 10-year T-note yield tumbled to 2.46% from 2.52% on Monday and below the previous 19-month closing low of 2.47% reached Aug. 31.

For small investors who’ve been piling into bonds this year, the latest rally means the market value of older fixed-income securities continues to climb after a hiccup in early September that briefly pushed prices down and yields up. The 10-year T-note yield reached 2.79% on Sept. 10.

With the third quarter wrapping up Thursday, markets face end-of-quarter book-squaring by professional investors that could exaggerate price moves.

Still, anyone looking for an excuse to run for safety Tuesday found it in new reports on consumer and business sentiment: The Conference Board said its consumer-confidence index this month fell to the lowest level since February, and the Business Roundtable’s quarterly survey of big-company chief executives showed less optimism about sales and hiring than the group’s second-quarter survey.

Goldeagle In Europe, yields on Irish and Portuguese government bonds surged to new highs on worries that the euro zone is headed for a second chapter of the spring sovereign-debt crisis. That also pushed money toward U.S. bonds.

Meanwhile, expectations remain high that the Federal Reserve by year’s end will launch an expanded program of buying Treasury securities for its own account -- a way to try to push longer-term interest rates even lower.

With all of that going for bonds, the Treasury had no trouble selling $35 billion of new five-year notes Tuesday at a record low auction yield of 1.26%. The yield on existing five-year notes slid to 1.23% from 1.27% on Monday.

George Goncalves, head of U.S. interest rate strategy at Nomura Securities in New York, said that for some bond buyers the math is very simple: “They think you can buy now and sell to the Fed later at a profit,” assuming the Fed’s purchases are big enough to drive bond prices higher and yields lower.

Goncalves, however, said he wasn’t willing to make that bet. He said Treasury yields are unlikely to go significantly lower in the near term, barring economic collapse. “At some point bonds have no value,” he said. “We’re getting close.”

That view may be continuing to help underpin stock prices, which have rebounded sharply this month, supported early on by better-than-expected economic data. The market managed to hold its own Tuesday, with the Dow industrials adding 46.10 points to 10,858.

But some investors have zero interest in buying U.S. bonds or stocks. They want hard money. That propelled gold to another record high, with October futures up $9.70 to $1,306.60 an ounce. The metal is up 4.5% in September alone. Silver jumped 23 cents to $21.69 an ounce, a new 30-year high.

It helped the metals that the dollar continued to slide. The DXY index, which measures the dollar against six other major currencies, fell 0.5% Tuesday to its lowest level since January.

The U.S. government’s official position always is that it wants a “strong dollar,” but as I noted in my weekend column in The Times, the Obama administration and the Fed now have more reasons to want a weaker greenback than a strong one -- and that’s a boon for the precious metals, which historically have been the antidote for devalued paper currencies.

-- Tom Petruno

Photo: A 1933 U.S. Double Eagle gold coin. Credit: Sotheby's

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