Chart of the Week: Yields on U.S. 10-Year Treasury Notes Below 3%

The chart of the week looks like it will now be a regular feature in this space. This week’s theme, once again, has a bond focus and extends the flight to safety theme from last week. The graphic below captures the full 46 year history of the yield on the 10-Year U.S. Treasury Note. While difficult to discern from the graph, this is the first week the yield on that bond has ever closed below 3.0%. The reason for the low yield is the overwhelming demand cause by investors who are embracing a flight to safety approach to investing and see U.S. government debt as a safe haven for their assets.

The low yields on U.S. government debt have several interesting implications. One implication is that a falling VIX does not reflect the action in the government bond markets. Another implication is that rising yields will indicate when money is starting to flow out of safe haven investments toward higher risk investments such as stocks. Finally, when the bulk of those currently holding government debt decide that it is appropriate to redeploy these assets into stocks, the pent-up demand for equities will be a formidable factor to reckon with.

[source: VIX and More]

Comments

[Boubou:]

Good. Could you add the date and time for this turn please?
I'm feeling very pent up.

2008 Nov 30 10:00 AM

[carey_jim:]

I wonder if the 10-Year Treasury yield is actually telling us something about future inflation/deflation?

Historically, very safe bonds are supposed to (Graham and Dodd's Security Analysis) yield 3% above inflation and more volatile stocks about 5% above inflation.

Could this rate be telling us that investors think US inflation will be flat to negative in the next ten years?

2008 Nov 30 11:56 AM

[cheapybob:]

The mortgage rates were much lower pre 1962 than they are today. My parents bought a house in 1961 with a 30 yr mortgage at 3.5% fixed. They are currently 5.5%.

2008 Nov 30 06:58 PM

[John Lounsbury:]

Jim - - -

That is one interpretation (low inflation expectation). Another possibility is simply a flight to safety, which will have a limited life. Once the pent-up demand for stocks that Bill Luby refers to is released, bonds will decline rapidly. In the future, people may refer to the great bond bubble of 2008-2009.

We live in exciting (or frightening) times.


On Nov 30 11:56 AM carey_jim wrote:

> I wonder if the 10-Year Treasury yield is actually telling us something
> about future inflation/deflation?
>
> Historically, very safe bonds are supposed to (Graham and Dodd's
> Security Analysis) yield 3% above inflation and more volatile stocks
> about 5% above inflation.
>
> Could this rate be telling us that investors think US inflation will
> be flat to negative in the next ten years?

2008 Nov 30 08:12 PM

[E Nuff Sed:]

Has the credit crisis formed a bubble in treasuries? Yeilds should explode when the treasury tries to monetize the enormous deficits being accumlated to deal with the crisis.

2008 Dec 02 05:39 PM