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Bond traders are hitting the panic button.
On Friday, the 30-year Treasury bond's interest rate fell to 2.54 percent, its lowest level since December 2008 in the midst of the financial crisis. The benchmark 10-year Treasury note also hit a low of 1.46 percent, a level not seen in the last century. These rates will likely push down the cost of borrowing for homes and credit cards for all Americans.
When investors are worried and want to protect their portfolios they plow their money into U.S. government bonds, which are considered among the safest in the world because they are less likely to lose value and are easily tradable. As demand for the bonds grow, the interest rate falls.
The key culprit on Friday: a weakening U.S. economy just as Europe is falling apart and key economies in Asia like China and India are slowing. The U.S. government said Friday that employers created only 69,000 jobs in May, the fewest in a year. It was the latest in a series of disconcerting data that showed the U.S. economy was losing steam.
"It's a precarious situation," said Kim Rupert, managing director of global fixed income analysis at research firm Action Economics. "The U.S. weakness is particularly worrisome because Europe is on a downward spiral and Asia is looking weaker."
Buyers of Treasury bonds are usually not the small investor, rather large banks, mutual and pension funds, insurance companies and central banks of other countries. The fact that the most sophisticated investors are buying Treasury bonds reflects the sense of anxiety percolating in the financial markets.
Global investors still consider U.S. debt one of the safest investments. For mutual funds, money market funds and banks, U.S. debt is considered so safe that they hold Treasurys as a proxy for cash.
It is also the easiest market to trade.
At $9.3 trillion, the U.S. government bond market is massive compared to other countries. Daily trading of Treasurys runs at $580 billion, far higher than British gilts ($34 billion) or German bunds ($28 billion), according to a study done last year by Fitch Ratings.
The U.S. Treasury market has another advantage. The U.S. dollar is the global reserve currency, which means a significant amount of global trade is made in dollars -- from toys and computer chips from China, coffee from Kenya or cars from Japan. Central banks in other countries therefore hold large reserves of U.S. currency, mostly through Treasury purchases.
More recently, the Treasury buying has accelerated from Europeans who are scrambling to get their euros out of weak banks. Greeks and Spaniards have been pulling billions of euros in deposits out of their banks in recent weeks, as European monetary officials and politicians are scrambling to find a solution to weakening banks.
"Buying Treasuries is almost like putting money in a bank, especially since you don't know if your own bank is going to survive," said George Goncalves, head of U.S. interest rates strategy at Nomura Securities. "You may not get much of an interest, but at least you know you will get your money back."
While Greece is scheduled for a second round of elections, Spain's banking sector is on shaky ground. The government needs $23 billion to rescue just one lender, Bankia, at a time when it is dealing with a recession and crushing unemployment of 24.4 percent.
Goncalves said that people were especially nervous because there were no new ideas emerging for a solution from Europe.
European Central Bank head Mario Draghi said this week that the setup of the eurozone was unsustainable. World Bank chief Robert Zoellick's opinion piece published in the Financial Times on Friday. "Eurozone leaders may be nearing a `break the glass' moment: when one smashes the pane protecting the emergency fire alarm," Zoellick wrote.
On Friday the benchmark 10-year U.S. Treasury bond's rate fell even lower after setting a record low yield on Thursday when it beat a previous mark set in November 1945. That was just after the end of World War II, when government price controls kept interest rates artificially low to preserve financial stability.
For the American public, lower interest rates on Treasurys directly translates to lower cost of funding.
The 10-year Treasury note is considered the basis for all other U.S. interest rates and usually leads to lower borrowing costs on everything from mortgage loans to credit cards. It would also make it more inexpensive for state and local governments, companies and consumers to borrow money.
In the past week, the benchmark Treasury yields have dropped from 1.74 percent to 1.47 percent. The drop in that yield, or interest rate, has pushed rates on 30-year mortgages to record lows.
Freddie Mac said that the average rate on the 30-year home loan fell to 3.75 percent this week. That's down from 3.78 percent last week and the lowest since long-term mortgages began in the 1950s.
On Friday, prices for the 30-year Treasury bond soared $2.21 for every $100 traded, while the 10-year note rose 78 cents.
In the market for shorter-term debt, the two-year Treasury dropped to 0.24 percent from 0.27 percent late Thursday.
The three-month T-bill paid a yield of 0.06 percent, down from 0.07 percent.