We know that yields on government debt from Spain are pushing
new record highs as their banking woes intensify.
Italian, Spanish, and even
French bond rates have been canaries in the
coal mines of Europe's financial crisis as they telegraph the
riskiness of these countries and their propensity to disappoint
investors with loss of principal should they collapse, in or out of
But the real eye-opener lately has been the "flight to
safety" in the government debt of the US, Germany, and Switzerland.
Today, US 10-yr Treasury Notes hit a record low yield of 1.53%. And
I was getting worried when they hit 1.7% a week ago.
In Germany last week, 2-yr bunds were snapped up for a
measly 0.07%. And their 10-yr bund is trading at a new record
of just 1.21% today.
Finally, I'm hearing that Swiss 2-yr notes are trading negative.
That's right... asset managers eager to get into the traditional
safe-haven currency are willing to pay the Swiss government just to
hold their money for them.
The extremely interesting tension here is that the Swiss do not
want a stronger franc and have been intervening for
over nearly a year to keep the EUR/CHF exchange rate above
1.20 by selling francs against euros. When that effort "snaps like
a twig" as the euro continues its slide, the franc could
soar anyway against all intention of the Swiss National Bank
For some recent historical perspective, it is
worth noting that US T-bills were bid to negative yields in
2008 during the height of the credit crisis. Why? Again, if you are
a large asset manager with piles of cash to park somewhere during a
banking meltdown with counterparty risk everywhere,
who ya gonna call? Uncle Sam, that's who.
So, my questions are these...
Are big investors overreacting in fear? Or is there truly
another major "credit event" on the horizon?
Are they just being cautious, or could this "institutional bank
run" become self-fulfilling?
CRYSHS-EURO TR (FXE): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
ISHARS-BR 20+ (TLT): ETF Research Reports
(VIX): ETF Research Reports
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