Nervous investors chase low-risk assets
It was a frantic flight to safety. Investors roared into Treasury bonds, cash and other low-risk assets on Thursday, acting on their fears about the weak global economic outlook on a day when stock markets in the US declined more than 4%.Updated: Aug 06, 2011 00:11 IST
It was a frantic flight to safety. Investors roared into Treasury bonds, cash and other low-risk assets on Thursday, acting on their fears about the weak global economic outlook on a day when stock markets in the US declined more than 4%.
Just last week, the markets showed signs of nervousness about the government’s creditworthiness during a standoff over Washington’s debt limit. But on Thursday, yields on two-year Treasury notes touched 0.3%, the lowest ever, while the yield on the benchmark 10-year bond dropped 21 basis points to 2.4.
The low yields reflected a surging demand for Treasuries, which have long been considered almost as secure as cash. The 10-year rates approached depths not seen since October 2010, shortly before the Federal Reserve began to pump hundreds of billions of dollars into the economy amid fears of a slowdown.
Rates on even shorter-term credit, including six-month Treasury bills and overnight loans in the vast market for repurchase agreements, swung toward zero Thursday. Yields on one-month bills actually fell into negative territory before closing at zero.
Above all else, cash has become the investments of choice this week as the deepening economic and debt worries in the US and Europe have made stocks look like a minefield to be avoided.
“The move to cash is symptomatic of a broader concern about growth and the stock market,” said Mike Ryan, chief investment strategist at UBS Wealth Management Americas.
Forester said he was shifting assets into a money-market fund that invests in Treasury notes. For other institutional investors, even money market funds seemed risky, and they instead sought the security of cash invested in commercial bank accounts.
The huge buildup in cash does not suggest that the world financial system is on the brink of another Lehman-like panic. But it does underscore the broader economic challenges facing both the United States and Europe, particularly the fear and uncertainty that has taken hold among companies, financial institutions and individuals.
The New york times