Treasurys Hit Record Lows
|PALLAVI GOGOI, AP Business Writer|
On Friday, the 30-year Treasury bond's interest rate fell to 2.54 percent, its lowest level since
When investors are worried and want to protect their portfolios they plow their money into U.S. government bonds, which are considered among the safest in the world because they are less likely to lose value and are easily tradable. As demand for the bonds grow, the interest rate falls.
The key culprit on Friday: a weakening U.S. economy just as
"It's a precarious situation," said
Buyers of Treasury bonds are usually not the small investor, rather large banks, mutual and pension funds, insurance companies and central banks of other countries. The fact that the most sophisticated investors are buying Treasury bonds reflects the sense of anxiety percolating in the financial markets.
Global investors still consider U.S. debt one of the safest investments. For mutual funds, money market funds and banks, U.S. debt is considered so safe that they hold Treasurys as a proxy for cash.
It is also the easiest market to trade.
The U.S. Treasury market has another advantage. The U.S. dollar is the global reserve currency, which means a significant amount of global trade is made in dollars _ from toys and computer chips from
More recently, the Treasury buying has accelerated from Europeans who are scrambling to get their euros out of weak banks. Greeks and Spaniards have been pulling billions of euros in deposits out of their banks in recent weeks, as European monetary officials and politicians are scrambling to find a solution to weakening banks.
"Buying Treasuries is almost like putting money in a bank, especially since you don't know if your own bank is going to survive," said
Goncalves said that people were especially nervous because there were no new ideas emerging for a solution from
On Friday the benchmark 10-year U.S. Treasury bond's rate fell even lower after setting a record low yield on Thursday when it beat a previous mark set in
For the American public, lower interest rates on Treasurys directly translates to lower cost of funding.
The 10-year Treasury note is considered the basis for all other U.S. interest rates and usually leads to lower borrowing costs on everything from mortgage loans to credit cards. It would also make it more inexpensive for state and local governments, companies and consumers to borrow money.
In the past week, the benchmark Treasury yields have dropped from 1.74 percent to 1.47 percent. The drop in that yield, or interest rate, has pushed rates on 30-year mortgages to record lows.
On Friday, prices for the 30-year Treasury bond soared
In the market for shorter-term debt, the two-year Treasury dropped to 0.24 percent from 0.27 percent late Thursday.
The three-month T-bill paid a yield of 0.06 percent, down from 0.07 percent.
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