Treasury rates fall on economic fears; gold jumps

Fresh fears about the economy drove investors and traders back into Treasury bonds Tuesday, sending yields to new lows.

Gold closed above $1,300 an ounce for the first time, also benefiting from renewed jitters over the global economy and the falling dollar.

The 10-year T-note yield, a benchmark for mortgage rates, slid to 2.45% from 2.52% on Monday and below the previous 19-month closing low of 2.47% on Aug. 31.

For small investors who’ve been piling into bonds this year, the latest rally means the market value of older fixed-income securities is climbing again after a hiccup in early September that briefly pushed prices down and yields up. The 10-year T-note yield reached 2.79% on Sept. 10.

With the third quarter almost over, markets face end-of-quarter book-squaring by big investors that could be exaggerating price moves, analysts said.

Still, anyone looking for an excuse to run for classic haven investments found it Tuesday in reports on consumer and business sentiment: The Conference Board said its consumer confidence index this month fell to the lowest level since February, and the Business Roundtable’s quarterly survey of chief executives showed less optimism about sales and hiring than the previous survey.

In Europe, yields on Irish and Portuguese government bonds surged to new highs on worries that the euro zone is headed for a second chapter of last spring’s debt crisis. That also pushed money toward U.S. bonds.

Meanwhile, expectations remain high that the Federal Reserve by year’s end will launch an expanded program of buying Treasury securities for its own account — a way to try to push longer-term interest rates even lower.

With all of that going for bonds, the Treasury had no trouble selling $35 billion of new five-year notes Tuesday at a record low auction yield of 1.26%. The yield on existing five-year notes slid to 1.22% from 1.27% on Monday.

George Goncalves, head of U.S. interest rate strategy at Nomura Securities in New York, said that for some bond buyers the math is very simple: “They think you can buy now and sell to the Fed later at a profit,” assuming the Fed’s purchases are big enough to drive bond prices higher and yields lower.

Goncalves, however, said he wasn’t willing to make that bet. He said Treasury yields were unlikely to go significantly lower in the near term, barring economic collapse. “At some point bonds have no value,” he said. “We’re getting close.”

That view may be continuing to help underpin stocks, which have rebounded sharply this month, supported early on by better-than-expected economic data. The market held its own Tuesday, with the Dow industrials adding 46.10 points to 10,858.

But some investors are forsaking U.S. bonds and stocks for hard money: Gold hit another record high, with September futures up $9.90 to $1,306.60 an ounce. Silver jumped 23 cents to $21.69 an ounce, a new 30-year high.

It helped the metals that the dollar continued to slide. An index that measures the dollar against six other major currencies including the euro and the yen, fell 0.5% Tuesday to its lowest level since January.

The U.S. government’s official position is that it wants a “strong dollar,” but economists note that the Obama administration’s plan to double U.S. exports in five years would be aided by a weaker dollar, which would make American goods cheaper abroad. A falling greenback is a boon for precious metals, which historically have been the antidote for devalued currencies.

tom.petruno@latimes.com