Fear over Italy and Spain push "safe" Treasuries to new low yields

08/04/2011 2:03 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

Fear continues to climb.

You can see it, of course, in the stock markets where the Dow Jones Industrial Average is down 2.72% as of 11:56 New York time and the Standard & Poor’s 500 stock index is down 3.09%. Things are even worse in this morning in Europe, the driver for today’s extreme fear, where the French CAC index is down 4.02%, the German DAX index 3.52%, and the Spanish Ibex 3.89%.

But for real evidence of the extent of the fear look to the Treasury market where investors are flocking to U.S. debt—and we all know how safe that is in the long run. Buying has dropped the yield on the 2-year note to a record low of 0.2803%. The 10-year bond yields less than 2.5% for the first time since November 2010. Go out 30-years and the long bond is paying 3.743%. That’s a drop in yield from 3.90% yesterday.

The level of fear is drowning out anything vaguely positive and we have had two mildly positive bits of news this morning.

First, initial claims for unemployment for the week ended on July 30 came in at 400,000. That is slightly below the 401,000 initial claims filed for the week ended July 23 and the 405,000-consensus estimate by economists. Certainly not enough to take the worry out of tomorrow’s payrolls and unemployment data but a slight pause on the road to panic.

Second, July retail same store sales came in slightly above estimates with Retail Metrics reporting a 5% increase in July comparable store sales. Fifteen retailers beat consensus estimates on same store sales and five missed. Again, not a huge plus but not a disaster either.

Certainly not enough to turn this market around. That will take some news out of Europe that restores some confidence that Spain and Italy aren’t headed the way of Greece. I don’t see the potential for a quick and credible response from anybody but the European Central Bank. But the bank continues to be extremely reluctant to intervene in bond markets again after having escaped the worst consequences of its buying of Greek bonds.

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