Treasury yields crash to record lows

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machinehead's picture
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Treasury yields crash to record lows

A slow-motion crash is underway in Treasury yields:

Oct. 8 (Bloomberg) -- Treasury two- and five-year note yields slid to record lows as data showing U.S. employers cut more jobs than forecast last month spurred speculation the Federal Reserve will buy more bonds to stimulate the economy.

Ten-year notes headed for a five-day gain as investors bet the floundering labor market will lead to weaker-than-expected growth in the broader economy this year. Private payrolls expanded less than forecast. Yields have slid this week as investors speculated the Fed will purchase more bonds, a strategy called quantitative easing.

It’s a strong signal for Fed QE 2,” Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, said today during a radio interview on Bloomberg Surveillance with Tom Keene.

The two-year note yield decreased 1 basis point, or 0.01 percentage point, to 0.3431 percent at 9:16 in New York according to BGCantor Market Data. It was the least ever, marking the sixth straight day the yield has set or matched a record low. The five-year note yield fell 3 basis points to 1.09 percent and touched 1.0880 percent, setting a record low for the fifth consecutive day. The yield on the 10-year note fell 3 basis points to 2.36 percent.

Given that Treasuries are a government-influenced market, multiple interpretations are possible as to the meaning of these freakishly low yields.

The most obvious is that with Banzai Ben Bernanke rumored to start buying up to a trillion dollars of Treasuries in QE II, the market is front-running the Fed by bidding up Treasuries ... which can then be unloaded at stratospheric prices into the bottomless bid of the 'non-funding constrained' central bank.

Other possibilities behind the low yields are a wilting economy (as suggested by the weak jobs data), a slide into deflation, or both. All of these factors could be in play, but it's anyone's guess as to which dominates.

With the five-year note yielding a miniscule 1.09% today, it's fair to say that we've turned Japanese.

Kon-nichi-wa, homies! Smile


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