U.S. government bonds are proving yet again that they are the go-to asset for haven-seeking investors. The yield on the 10-year U.S. Treasury bond fell to 1.77 per cent on Monday morning, down 7 basis points (there are 100 basis points in a percentage point).
That’s well below the 2 per cent threshold that the benchmark bond has been trending along for some time. The yield is quickly closing in on the record low touched in September, when it fell close to 1.7 per cent. (As yields fall, bond prices rise.)
This is no sudden panic-buying though. Bloomberg News pointed out that bond prices have risen for eight consecutive weeks, which is the longest series of gains since 1998, following the Russian debt crisis.
Bonds are reacting to a recent lurch toward uncertainly, particularly in Europe. A popular backlash against austerity measures – along with some pretty convincing evidence that austerity measures are hurting the euro zone’s economy – have awoken the usual concerns about Greece leaving the euro zone and Spain requiring a big-dollar bailout.
At the same time, the U.S. economy is hardly firing on all cylinders, and it isn’t hard to build an argument that the economy will find it difficult to decouple itself from the recession-bound European economy. Meanwhile, China’s economy is also straining, giving investors all the reasons they need to take a safety-first approach.
Some European bonds are again flashing warning signs that the market is growing worried. The yield on the 10-year Spanish government bond jumped 27 basis points – its biggest one-day rise since December – to 6.23 per cent. That puts the country’s borrowing costs well into a danger zone and at their highest level since November, when the European sovereign-debt crisis was in full bloom. The yield on Italy's 10-year bond rose above 5.7 per cent, a gain of 24 basis points.
And as for gold...the turbulence has got to be a painful reminder to investors that their beloved precious metal has a mixed reputation as a haven investment, and certainly pales next to the allure of U.S. bonds when troubles arise. Gold on Monday fell to $1,560 (U.S.) an ounce, down $19 and closing in on its recent low of $1,546 an ounce in late December. From its high in September, when it broke the $1,900-barrier, gold has fallen a total nearly 18 per cent. In other words, gold is heading toward a bear market, following a number of other commodities that are already there.