By Matt Phillips
Nice story in Today’s Journal by Mark Gongloff pointing out how many Wall Street egg heads were caught unawares by the investor rush to the safety and liquidity of U.S. debt in recent weeks. That pushed the prices of U.S. debt higher, which in turn brought the yields on the U.S. debt — which move in the opposite direction of prices — lower. Here’s Gongloff:
Many have been caught flat-footed by the sudden move into Treasurys because it has been driven by a rush to safety amid the ballooning euro-zone debt crisis, a stampede that was difficult to predict a few months ago. As buyers piled in, prices rose and yields—which move inversely to prices—fell.
Treasury yields are now trading near their lowest levels in a year, the bottom of a trading channel that has persisted for about 12 months.
That has upended the widespread view at the beginning of the year that Treasurys would seem less attractive amid a recovery in company profits, a rebounding U.S. economy and an avalanche of Treasury debt issuance. Less than two months ago, the 10-year yield was flirting with 4%.
Of course, the rush to U.S. debt can’t last forever. We’ve already seen a rather lackluster reaction to some recent auctions as investors deem the yields they get for lending to Uncle Sam to be too paltry.
