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U.S. bonds and greenback rise as downgrade fears simmer

The freakout on Monday morning appears to be mostly confined to the stock market, and even then the declines seem hardly alarming. The Dow Jones industrial average was down 214 points or 1.9 per cent about 30 minutes after the start of trading.

The CBOE volatility index, or VIX, is also reflecting some nervousness on the part of equity investors. The so-called fear gauge spiked to 36.7, up 14.8 per cent, to its highest level since May 2010. Put another way, the index was significantly higher during last year's flareup of the European debt crisis and was more than twice as high during the darkest days of the 2008 and 2009 financial crisis.

Meanwhile, U.S. government bonds are maintaining their reputation as go-to havens for nervous investors, suggesting that the U.S. credit rating downgrade by Standard & Poor's isn't having much of an effect. The yield on the 10-year U.S. Treasury bond fell to 2.42 per cent, down from 2.56 per cent on Friday. That puts it close to its recent low, touched on Thursday during the dramatic stock market meltdown.

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The U.S. dollar index, which measures the greenback against a basket of currencies, rose slightly, to 74.8 -- so there has been no retreat here. Gold rose to $1,697 (U.S.) an ounce, up $33. However, it was higher earlier in the day, when it touched $1,716 an ounce and then backed off a little.

Unsettling day? Definitely. Panic. No.

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About the Author
Investing Reporter

David Berman has been writing about business and investing since 1995. He has written for a number of magazines, including Canadian Business and MoneySense. He worked at the Financial Post as an investing writer and daily columnist before moving to the Globe and Mail in 2008. More

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