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No deficit deal? No problem ... for Treasury bonds

November 21, 2011 | 11:07 am

Treasury yields slid Monday morning despite the apparent failure of the congressional "super-committee" to come up with more than $1 billion in deficit cuts over the next decade.
So hopes for Congress to show some spine on deficit reduction have been crushed.

Let's show them how outraged we are: Buy more Treasury bonds!

That's the market reaction on Monday, as Treasury yields slide despite the apparent failure of the congressional "super-committee" to come up with more than $1 trillion in deficit cuts over the next decade.

While stocks dive, the yield on the 10-year T-note slid to 1.95% by about 11 a.m. PST, down from 2.01% on Friday.

In another sign of strong demand for government paper, the Treasury sold $35 billion worth of two-year notes at a yield of 0.28%, slightly below expectations.

If investors took the opposite tack -- dumping Treasuries and driving yields higher -- it might send a powerful message to lawmakers to get their act together on the nation's spiraling debt load.

But in times of fear, Treasuries still are the world's favorite haven. At least you know you'll get back the bonds' face value, because the government can always print more money.

This is smelling like August, when Standard & Poor’s surprise downgrade of America's credit rating to AA+ from AAA triggered massive selling in stocks, commodities and other assets -- and, ironically, drove Treasury bond yields sharply lower as investors ran for cover.

Stocks tumbled in Europe on Monday, with the German market down 3.4%, Italian stocks down 4.7% and the Spanish market off 3.5%. It didn't help the mood that Spanish government bond yields continue to rise after voters threw out the Socialist government: The 10-year yield rose to a new euro-era high of 6.55%, from 6.38% on Friday.

On Wall Street, stocks were broadly lower in thin trading. The Dow Jones industrial average was off 316 points, or 2.7%, to a five-week low of 11,479 at about 11 a.m. PST. The Dow slumped 2.9% last week.

Commodities also were hit hard Monday, with gold futures dropping $46.40 to $1,678.30 an ounce, a four-week low.

RELATED:

"Super-committee" is all but admitting defeat

Corporate power grows stronger as government wanes

Europe mess gives U.S. a reprieve on debt comeuppance

-- Tom Petruno

Photo: The Capitol in Washington. Credit: Associated Press

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