http://www.bloomberg.com/news/2011-08-12/what-do-low-treasury-yields-mean-the-ticker.html
The low yields can be interpreted in various ways. For one, they could be a vote of confidence in the U.S. and its leadership. By this logic, investors are demonstrating that they don’t care what S&P says. They still see U.S. government bonds as the world's safest investment, and they have faith that politicians will ultimately fix the country's long-term finances.
Alternately, the drop in yields could be attributed to an interim move by investors looking to ride out market turmoil. Such investors buy Treasuries because the U.S. government bond market is very deep and liquid, meaning they can get in and out quickly, with minimal cost. The low yields that come with the Treasury market's special role could present a sort of moral hazard for the U.S.: They ease the pressure on politicians to make the tough choices needed to put the country's finances on a sustainable trajectory.
A third possibility is that the yields reflect the deteriorating outlook for the U.S. economy -- an outlook seen in the Federal Reserve's decision this week to hold short-term interest rates near zero to mid-2013. Long-term yields tend to fall when investors expect slower growth or a recession. The latest debt-ceiling deal, which threatens deep cuts as early as next year, could contribute to the sense that the U.S. economy faces tougher times.
The low yields can be interpreted in various ways. For one, they could be a vote of confidence in the U.S. and its leadership. By this logic, investors are demonstrating that they don’t care what S&P says. They still see U.S. government bonds as the world's safest investment, and they have faith that politicians will ultimately fix the country's long-term finances.
Alternately, the drop in yields could be attributed to an interim move by investors looking to ride out market turmoil. Such investors buy Treasuries because the U.S. government bond market is very deep and liquid, meaning they can get in and out quickly, with minimal cost. The low yields that come with the Treasury market's special role could present a sort of moral hazard for the U.S.: They ease the pressure on politicians to make the tough choices needed to put the country's finances on a sustainable trajectory.
A third possibility is that the yields reflect the deteriorating outlook for the U.S. economy -- an outlook seen in the Federal Reserve's decision this week to hold short-term interest rates near zero to mid-2013. Long-term yields tend to fall when investors expect slower growth or a recession. The latest debt-ceiling deal, which threatens deep cuts as early as next year, could contribute to the sense that the U.S. economy faces tougher times.
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