Yields Fall to Record Low on Recession Fears

Two-year Treasury yields touched a record low of just 0.28 percent today in response to fears that the U.S. economy could be hurtling towards another recession. In New York the S&P 500 was down 2.6 percent in mid-day trading while the Dow shed 2.3 percent. The carnage in Canada’s largest exchange, the Toronto Stock Exchange, pushed the main index down a whopping 372 points for a loss of 2.9 percent with half the trading day remaining.

The day’s events clearly show a significant loss of confidence in equities and the economy in general. Investors are looking for other options in a bid to protect assets and even at barely over a quarter point, the safety of Treasuries is seen as an attractive alternative. Gold will likely continue to find buyers as will assets denominated in the Swiss franc and Australian and Canadian dollars.

Greater Likelihood of QEIII

Today’s events will also contribute to the growing speculation that the Federal Reserve will have no choice but to resort to anther round of quantitative easing. The economy is approaching free-fall with the latest manufacturing data confirming that growth in the sector slowed to its weakest level in two years.
Tomorrow’s Non-Farm Payroll report has the potential to really light the recession fuse if the actual number falls short of the 85,000 new jobs predicted by analysts.

Central Banks Acting

All this comes in the wake of increased activity by the major central banks. The Bank of England today held interest rates steady at 0.5 percent, while the European Central Bank kept rates at 1.5 percent. However, the ECB did confirm that it intended to provide additional loans to the banking system in light of the “very high” degree of economic uncertainty and the ongoing debt crisis.

The Swiss National Bank, in an attempt to devalue its currency, cut interest rates to zero yesterday and sold francs into the money markets. The Bank of Japan also acted to weaken the yen which has climbed steadily against the floundering dollar.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.