Friday, April 13, 2012

Today's Major Market Move: 5 Year US Treasury Yield Declines 19 Basis Points Month to Date

The bond market is doing the equivalent of boarding up the windows and stockpiling bottled water and batteries. When investors start moving money into low risk sovereign bonds, US Treasuries and German Bunds in particular, someone out there thinks a storm is about to hit. Of the 73 different bonds we track from the U.S., the U.K, Brazil, Japan, Germany and Hong Kong, yields have declined in 64 of them and remained flat in another 4. Here's the top ten decliners in terms of % change in yield (we're working on modifying this table to show absolute change in yield):

Click here to go to the live table.

The top 6 positions in that table are all occupied by German Bunds but we used the 2 year Bund as our Major Market Move topic a little over a week ago on April 7. So today we're going to switch it up and talk about the 5 year U.S. Treasury instead. After climbing over 1% in mid-March, the U.S. 5 year yield has now dropped back down and is approaching the low going back to mid-February.

Click here to go to the live chart.
If we extend our view going back to 2007 (pre-crisis), we will see that the yield is also getting precariously close to the low over that longer time frame.

Click here to go to the chart on Yahoo.
We continue to see bond investors refusing to join in on the party in equities. As we stated in the aforementioned German Bund post, Japanese equities have seen several sizable rallies during its 30+ year deflationary episode.

Click here to go to the chart of the Nikkei 224 on Yahoo.
This chart above is one of the main things that gives Bernanke indigestion. One of his prime objectives is to get investors to abandon their safety net and go chase higher returns in riskier asset classes. The idea is to get money moving through the economy (increase velocity) rather than having that money parked and stagnating in treasuries.

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