Treasury yields on debt maturing in 10 years and less fell to all-time lows as the Federal Reserve said economic growth was “considerably slower” than forecast and it would keep borrowing costs on hold through mid-2013. The Treasury sold $72 billion of notes and bonds this week, with yields on three- and 10-year notes at record auction lows. The 10-year yield touched 2.0346 percent, an all-time low, amid concern the risk of recession is rising after Standard & Poor’s downgraded the U.S. credit rating to AA+ and as the European sovereign debt problems showed signs of spreading.
“What we’re witnessing is a reassessment of the health of the economy,” said James Collins, an interest-rate strategist in the futures group at Citigroup Inc.’s Global Markets unit in Chicago. “We could take another run toward 2 percent.”
U.S. 10-year note yields fell 30 basis points percent to 2.26 percent from 2.56 percent Aug. 5, according to Bloomberg Bond Trader prices, the biggest drop on an intraday basis since December 2008.
“At the end of the day, the Fed is on hold for two years,” said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York. “The flight-to-quality trade is still in vogue. Fear is still everywhere and Treasuries benefit from the fear trade.”
Former Treasury Secretary Henry Paulson said he would invest in U.S. government securities before other sovereign debt even though the nation’s political process isn’t working at a “AAA level.”
“I would take U.S. Treasuries over other sovereign debt, other AAA sovereign debt, any day of the week,” Paulson, 65, said Aug. 11 at Dartmouth College in Hanover, New Hampshire. “That’s not to say we don’t have important issues to deal with in this country.”
