On Wednesday, the benchmark 10-year U.S. Treasury hit an all-time low when its yield dropped to 1.642% early in the trading day. This come from increased worries over Europe’s sovereign-debt crisis. Global investors have been sinking their money into safer assets, leading the 10-year yield to drop below 1.672%; this was its previous low last seen in February 1946 but it briefly hit that level in September 2011.
Joining the 10-year in new lows, was the seven-year yield, hit a record-low of 1.099%.
The Electron Global Fund was up 2% for September, bringing its third-quarter return to -1.7% and its year-to-date return to 8.5%. Meanwhile, the MSCI World Utilities Index was down 7.2% for September, 1.7% for the third quarter and 3.3% year to date. The S&P 500 was down 4.8% for September, up 0.2% for the third Read More
Why the drain on the yields? The continuing worries over Europe are still bringing them down. Since early May, investors’ concerns about the future of Greece in the euro zone have been driving them into safe Treasurys, which has seen gained yields close to record-low levels. Adding fuel to the fire is the current situation in Spain. The concerns about its capability to support the banking system are wearing investors down.
Other actions is Wednesday’s marketplace haven’t helped matters. The euro depreciated 0.7 percent to $1.2411. Italian bond yields on 10-year bonds rose 15 basis points while the rate on Spain’s 10-years jumped to a euro-era record as compared to German bunds, reported Bloomberg.
In addition, the S&P GSCI gauge of raw materials dropped 1.6 percent; this is its lowest point October. Oil dropped below $89 a barrel.
Combined, were all these factors the nails in the coffin for the new lows?
With the new lows, it’s a whole new world for the benchmark 10-year Treasurys and the marketplace. Recently, the note had a 1.644% yield.
David Coard, head of fixed-income sales and trading at The Williams Capital Group said to The Wall Street Journal, “This is fear, and how can you determine how much further you can go when it’s an emotion-driven market?”
Good question and many have 1.5 percent as the target. Another benchmark is the 35bps spread for the 10-year German bund yields. While they recently have yielded 1.28%, it’s possible that the 10-year US yields could find some security around the 1.6% mark.
Unless America faces a lost decade similar to Japan, investors buying ten year treasuries will almost certainly lose money on an after tax basis. However as we have pointed out, the Federal Reserve can control treasury yields and shorting them is a dangerous game.