How low can it go?
The yield on the 10-year Treasury hits a milestone of sorts. What does this say about the global economy?
Since yield moves against price, The Wall Street Journal wondered if the rally in Treasurys might finally have peaked. One bond watcher from Nomura isn't sure, and tells the newspaper he doesn't advocate shorting the bond market yet.
This yield was unimaginable just a few months ago, when people thought that yield had nowhere to go but up, writes Barron's. The five-year note already dropped through 2%, and the three-year note was dangerously close to 1%. The two-year note fell to 0.59% and before recovering to 0.62%.
Some experts told Barron's that they expected the 10-year Treasury to get back to the mid-3% range in the next year, writes Randall Forsyth. But the Royal Bank of Scotland asked investors to "think the unthinkable": yields below 2%. The global financial system is on the "cliff-edge," the bank's interest team said. Forsyth continues:
For those who are listening, record-low Treasury note yields are screaming an unambiguous message: the market is discounting deflationary, depression conditions, even if mainstream economists are not.
The Surly Trader tries to read deeper into the two-year Treasury, and says the yield is a sign that the market thinks the Fed will maintain its "extremely accommodative" monetary policy through perhaps even 2011.
We should be worried about deflation, not inflation, at this point. "If the Fed is not expected to raise short-term interest rates and inflation is expected to be low, then we should expect very low growth levels and a slow recovery in employment levels," the Surly Trader writes.
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