5-year Treasury Yield Hits Record Low, Stock Fall

(Bond Market Wrapup for July 20th, 2012) Investors scurried for safe haven assets pushing US Treasury five-year yields to record lows as Spain  continued securing bailout money for its stricken banks.

The yield on US 10-year notes also traded near record lows as investors grew worried over reports that Spain’s Valencia region is preparing for a rescue package from Madrid even as EU finance ministers approved the first tranche of €30 billion bailout-money for the country’s struggling lenders. The benchmark 10-year US Treasury yield dropped five basis points to 1.46 percent while yield on 30-year treasury bonds fell six basis points to 2.55 percent in late afternoon trading, New York time.

10 Year Treasury Yield – 1 Month Chart 

Bond funds were also up on the day with the iShares Barclays 20 Year Treasury Bond ETF (TLT) climbing $1.57, or 1.22 percent, to close at $130.06 while the Vanguard Total Bond Market ETF (BND) gained 16 cents, or 0.19 percent, to settle at $85.16 for the week.

TLT 1 Month Chart 

US stocks closed lower Friday snapping its three-day winning streak as a mixed bag of corporate results and record high 10-year borrowing costs prompted investors to take some money off the table.  The Dow Jones Industrial Average (DJIA) tumbled 120.79 points, or 0.9 percent, to 12,822.57, up 0.4 percent for the week but off 0.5 percent for July. Within the Dow, 23 of the 30 components slumped.

Intel (INTC), Bank of America (BAC) and McDonald’s were the biggest percentage decliners while General Electric (GE) and Chevron (CVX) led the day’s winners.

 Dow Jones Industrial Average 1 Month Chart

The S&P 500 Index (SPX) shed 13.85 points, or 1 percent, to finish the week at 1362.66, up 0.4 percent for the week and higher less than 0.1 percent for the month.  SanDisk (SNDK) led the day’s gainers; vaulting 10 percent on better-than-expected results while Chipotle Mexican Grill Inc (CMG) crashed more than 21 percent after sales growth in the second quarter slowed down to the lowest since early 2010.
The NASDAQ Composite Index (COMP) lost 40.6 points, or 1.4 percent, to close at 2925.30, up 0.6 percent for the week, but down 0.3 percent for the month.

  • For every two stocks declining, one advanced on the NYSE.
  • Oil prices for August delivery slipped $1.22 to close at $91.44 a barrel.
  • Gold futures for August delivery rose $2.40 to $1,582.80 an ounce.
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Comments

  1. Michael says

    Wouldn’t it be a good time to start buying an ETF that shorts long term treasuries? Like TBT? I admit this is an area I don’t know much about, but it would seem to make sense given these record low.

    • Learn Bonds says

      Hi Michael,

      Thanks for reading and for the comment. The case could certainly be made the rates cannot go lower however people have been talking about this for a couple of years now. Those that have shorted treasuries using the TBT or other instruments have lost a ton of money as a result. Have a look at the 1 year chart of the TBT and you can see that $32 invested in 1 share of the TBT 12 months ago is now worth around $14. This all happened during a time when interest rates were considered very low from a historical standpoint.

      Here is an article that we wrote a while back making the case for lower rates, so you can see the other side of the argument.

      Lastly you should keep in mind that the TBT and other leveraged ETFs are only designed to provide the inverse performance for 1 trading day. Over longer periods of time there can be a significant breakdown in the performance that you are seeking. You can read more about this here.

      If you are still interested in shorting treasuries you can read more about how to do that here.

      Hope that helps!

      Dave

  2. Amy says

    The bond market is no lengor market driven. It’s been taken over by the Fed in collusion with the banks. Who actually believes that inflation is only 2%? Maybe only the fools who actually believe the Fed.

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