In Treasury bonds news this week, the yield on US 2-year Treasury notes reached a record low of 0.59% this morning, while bond yield on 10-year Treasury notes fell to 2.96%, the lowest in 14 months. Even yield 30-year notes fell to a 7-month low of 3.98%. Amid this trouble in Treasuries, the Dow opened down more 185 points this morning.
The falling yields on Treasuries represent a flight out of risky equities and into the safety of US debt. Even though the yields wallow at or near record lows, traders are happy to get any positive return available.
The reported rise in the April Case-Shiller home price index did nothing to alleviate fears that the economic recovery is getting weaker and may be headed for life support at any moment. Higher housing prices were due almost entirely to the federal tax credit which expired on April 30th. Since then, all the housing price indicators have slowed down again.
In Europe, worries about a Greek default on sovereign debt rose to the top again as workers went on strike to protest the government’s austerity program that is supposed to reduce the country’s debt. Where Greece leads, traders worry that the rest of Europe may follow, or at least Spain and a few others may follow.
China is not helping things either as economic growth is perceived to be slowing in what is now the main driver of hopes for a global economic recovery. But Chinese equities are trading lower and the coming IPO of the Agricultural Bank of China is likely to suck up investment that once might have gone elsewhere.
Perhaps worst of all is falling consumer confidence. In its monthly report this morning, the Conference Board said that its Consumer Confidence Index fell from 62.7 in May to 52.9 in June. The Board’s spokeswoman stated the obvious: ” Increasing uncertainty and apprehension about the future state of the economy and labor market, no doubt a result of the recent slowdown in job growth, are the primary reasons for the sharp reversal in confidence. Until the pace of job growth picks up, consumer confidence is not likely to pick up.”
The consumer condfidence numbers sent the DJIA down another 40 points. Consumer demand is stalling because people are worried about their jobs and about the slow-motion economic recovery. Expectations for Friday’s unemployment report are that unemployment will rise from 9.7% to 9.8%. That won’t boost confidence, or equities, either.
The conflicting prescriptions for getting out of the economic doldrums couldn’t be starker. The Obama administration has argued for additional government stimulus to create demand that will lead to hiring and more taxpayers. The Europeans and others have argued for austerity and lower debt.
But looking at Treasury note yields, it seems like a good time for the US government to borrow. Borrowing money for 10 years at less than 3% interest is a very good financial deal. The hard part is making it a very good political deal — and, in a US election year, increasing debt does not look like a winner at the polls.
