Are Treasuries Losing Their Safe-Haven Luster?

As the S&P 500 Index (SPY; top chart) weakened through October, we saw the traditional flight to quality among 10-year Treasury notes, which hit a low yield of 3.4% on the 8th. Since that time, stocks have made harrowing new lows, but Treasury yields have soared, as investors have sold them off as well.

Perhaps, amidst the glut of borrowing the U.S. will have to undertake and the state of the U.S. economy, Treasuries are losing their luster as a safe haven. That would not bode well for interest rates in general, including mortgage rates--and that would not be good for an economic rebound.

Comments

[CLH:]

Bonds go up during market sell offs and down as stocks go up. Its quite simple.

The smart people are selling bonds because they think stocks will turn up.

So do I.

2008 Oct 11 05:10 PM

[bearfund:]

Actually, a sharp sell-off in Treasuries is a prerequisite to any recovery. The veil has been parted and the game is up; no investor is going to sink money into assets that yield less than inflation. That's what this whole "collapse" is about: the Fed dithered and dithered and refused to set interest rates at realistic levels, so eventually the market got tired of waiting and did their job for them. Corporate borrowers now have to pay reasonable prices for their money. If they don't want to pay, they can stop borrowing. We've now seen crashes in corporate bonds, CP, equities, commodities, and exotics. What we haven't seen a crash in is Treasuries. The bear leaves no stone unturned and will not leave until his destructive appetites are sated. Only when Treasuries crater will we finally be done with this part of the supercycle and ready to begin building a base for recovery. Higher interest rates will draw money out of hiding.

2008 Oct 11 11:16 PM