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10-year Treasury note yield plunges below 3% on economy fears

June 1, 2011 |  1:31 pm

The rush of money into U.S. Treasury bonds this spring is turning into a deluge as nervous investors seek relative safety.

Wednesday's lousy economic reports fueled another buying wave in the Treasury market, driving the benchmark 10-year T-note yield (charted below) to 2.94%, down from 3.07% on Tuesday and the lowest since early December. As bond prices rise their yields fall.

10yrjune Treasuries are gaining, continuing a rally that has accelerated since early April, as some investors flee stocks. The Dow Jones industrial average tumbled 279  points, or 2.2%, to 12,290 on Wednesday. The Dow now is down 4.1% from its multiyear high reached April 29.

The latest reports on U.S. manufacturing activity, auto sales and job growth all point to a further slowing of the economy -- just one month away from the day when the Federal Reserve is supposed to complete its $600-billion Treasury-bond-buying program launched in November.

The Fed's program, of course, has been aimed at keeping the recovery on track by pumping more money into the financial system and by keeping longer-term interest rates suppressed.

If the economic data continue to weaken, the focus may quickly turn to whether the Fed might launch yet another bond-buying stimulus program -- though some analysts believe that any such move by the central bank could spook the markets rather than soothe them.

The latest dive in Treasury yields should help pull mortgage rates lower. But with home prices continuing to drop it isn't clear whether lower loan rates would be much of a lure for skittish potential buyers.

Meanwhile, Pimco bond guru Bill Gross continues to warn investors away from Treasuries, arguing that yields at these levels "fail to adequately compensate investors for the risk of holding them."

Gross has taken some heat for missing the spring plunge in yields (which drove up the market value of older Treasury securities), but he clearly isn't interested in changing his strategy now.

-- Tom Petruno


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