Buyers Flock Back to Treasury Market
Fearful investors rushed back into Treasury securities Wednesday as stocks tumbled anew.
Gold and silver also attracted interest. Silver futures posted their biggest one-day gain in two years.
In other trading, the dollar initially sold off with stocks, then rebounded.
The Treasury market lured buyers after selling Monday and Tuesday drove yields higher.
The annualized yield on the two-year T-note slid to 2.81% Wednesday, a near-50-year low, from 2.95% Tuesday. The yield on six-month T-bills dropped to 2.31% from 2.47% Tuesday.
The five-year T-note yield slid to 3.80% from 3.90% Tuesday.
Investors are “trying to own as many two- and five-year notes as they can,” said James Rice, a fixed-income strategist at Stone & Youngberg in San Francisco.
Expectations that the terrorist attacks will drive the economy into recession have convinced many investors that the Federal Reserve will continue to cut its key short-term interest rate, the federal funds rate.
That rate, which is what banks charge each other for overnight loans, was cut from 3.5% to 3% Monday by the Fed.
But the central bank on Wednesday helped pushed the rate far below that 3% target as it flooded banks with cash to keep the financial system running. At one point the rate was as low as 0.5%, bond traders said.
Joseph Pregiato, a bond trader at Josephthal & Co., said the Fed could cut its official federal funds target rate as low as 1.5% in the months ahead to help the economy.
But some bond investors are skeptical. Bill Gross, bond guru at Pacific Investment Management in Newport Beach, said earlier this week that he was selling shorter-term Treasuries because he believed yields couldn’t fall much lower.
Longer-term bond yields were down only marginally Wednesday. Traders said that reflected expectations that rising federal spending to help the economy will lead to heavy new bond issuance.
The 10-year T-note yield dipped to 4.69% from 4.70% Tuesday.
In commodities markets silver futures prices soared 6%, the biggest one-day gain in two years, and gold futures hit a 15-month high as some investors hunted for alternatives to the sinking stock market.
Silver futures for delivery this month jumped 27.5 cents to $4.72 an ounce. September gold futures rose $3.40 to $291.50 an ounce.
In currency trading the dollar ended modestly weaker against the euro after slumping early in the day, as the stock market plummeted. The euro ended at 93.1 cents, up from 92.7 cents Tuesday. The yen weakened to 117.48 per dollar from 117.23 Tuesday.
Some traders believe the dollar is likely to fall in coming months.
“As the economy slows and our asset markets fall, then they’re less of a destination for global investors,” said David Johnson, head of institutional foreign-exchange sales at HSBC Bank USA.
