Investors Seek Treasury Port in a Storm

Posted on Aug 8, 2011

Flickr / b00nj

“Everybody is looking for whatever they perceive as a safe haven, even if it’s just plain illogical,” said David Kelly, market strategy chief for J.P. Morgan Funds.

U.S. stocks sank almost 6 percent Monday, as investors disposed of risky assets and bought low-yielding but more secure Treasury bills and bonds, despite Standard & Poor’s recent downgrade of the U.S. government credit rating. Once again, investors are fleeing markets and embracing government. Said investor Warren Buffett: “If I have to buy [Treasurys] at a zero-percent yield, I will. I don’t like it, but we’ll do it.”

The Dow Jones Industrial Average tumbled about 634 points Monday after big declines last week, dropping beneath 11,000 for the first time since November. Nearly $2 trillion in market wealth has disappeared since the average stood at 12,700 late last month. —ARK

The Wall Street Journal:

Investors continued to pile into the Treasury market, despite the rating downgrade, and the huge safe-haven buying sent benchmark yields to their lowest level since January 2009.

“At the moment it is not about yields. People are buying Treasurys because they are afraid to be in anything risky,” said Thomas Roth, executive director in the U.S. government bond trading group at Mitsubishi UFJ Securities (USA) in New York. “They will take Treasurys at whatever yield they can get. So Treasury yields right now are a function of fear.”

The downgrade from triple-A to double A-plus by S&P wasn’t a big surprise, as the rating firm had signaled such a move in recent weeks. But the price moves underline the dilemma confronting investors: there are few alternative safe-haven assets out there that can match the depth and liquidity of the Treasury market, which has more than $9.3 trillion debt outstanding, even as the U.S.‘s rating was cut by the Standard and Poor’s for the first time in modern history late last week.

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