Falling Treasury yields are boosting both September Treasury Bonds and Treasury Notes overnight as fear that the global economic recovery could be dead is driving investors to seek shelter in so-called safer assets.
Many veteran investors have always said “if you want to know the direction of the economy then watch the Treasury yields”. Based on the current price action and backed by last week’s dovish statement from the Federal Open Market Committee’s investors are increasing demand for the lower-yielding Treasuries, indicating that the U.S. economic recovery may be slowing.
Investors have also chosen to ignore the pledges by the G-20 nations over the week-end to maintain stimulus plans until their economies have fully recovered. The pumping of money into the economy has been one of the main catalysts behind this entire 15 month rally. Although during the G-20 photo-op the leaders seemed happy, behind the scenes one has to question how Obama is going to get away with spending the U.S. out of a possible double-dip recession and increasing the budget deficit while countries such as the U.K. and German adapt more austere financial measures. At some point there is going to be a major conflict triggered by clashing economic theories.