Low yields on U.S. Treasury bills, notes, and bonds are good for stocks. They make bonds look less attractive and stocks relatively more so.
But falling yields that are caused by buyers flocking to Treasuries aren’t a good sign. The decline in yields then is a signal of a falling appetite for risk.
And if the buying is taking place when yields are already extremely low, it’s an especially worrying signal. Buyers are saying that they’ll take almost any yield–in fact, they’ll take almost no yield–in order to play it safe.
That’s what we started to see at the end of last week.
 The yield on the 10-year Treasury note fell to its lowest level in roughly four months.
This warning of a decline in the appetite for risk–bad for stocks since investors see them as riskier than bonds–from falling Treasury yields is backed up in recent days by big drops in indexes that track the riskiest of bonds, those rated below investment grade and commonly known as junk bonds. On Thursday, when stocks fell heavily, so did junk bonds.
That’s exactly what you’d expect if investors are looking to reduce their market risk .
Humm…. It seems to me that the best bet to reduce market risk, is not to invest in a low yeald dying dollar, but rather to invest any surplus funds in gold and silver. And I am dammed tempted to do just that ! Just suppose, rather than pull out of stocks and in to treasuries, to go into gold, and silver instead.
Jim,
Considering that baby-boomer are slowing entering retirement, is it possible that this is causing a shift from more risky equity investment to supposedly safer treasury and bond investment, and possibly one of the key reason for the rally in treasury? If that is the case then this trend could last a while and wouldn’t it be the next baby-boomer induced bubble?
From what we can tell, the Fed has ben cutting back its purchase of Treasurys recently. The Fed doesn’t seem to be the source of an increase in buying over the last week anyway. At best we can tell.
I think off shore bets make more sense. T’s are not a “good” buy.
Of course, how many of those purchases have been by the Fed?