Last call for the flight to U.S. safety?

June 15, 2011: 1:02 PM ET

The flight to safety trade is alive and well, for now.

The dollar and Treasury bonds rallied Wednesday after Greece's prime minister offered to resign. His resignation would mark the third fall of a bailout country government in recent months, after the collapse of Ireland's governing party last fall and the demise of Portugal's ruling group this spring.

Safe at any speed?

The yield on the 10-year Treasury note plunged to 2.97% from 3.09% at the start of the day, an "overwhelming" move whose size and swiftness point out the scale of the market bet against U.S. debt, says Jim Vogel of FTN Financial.

The euro is also falling, in a reaction that market participants hope will spur meaningful action by European leaders – though for now that hope seems far fetched.

"Sometimes, market alarm is sufficient to spur govt. officials to renew focus on solutions," Vogel writes in a note to clients Wednesday. "The EU has been particularly slow on the uptake on this concept, and that adds an element of 'golly, this is bad' into any given trading day."

Other officials slow on the uptake of that concept happen reside in the U.S. Congress, where the debt ceiling mess threatens to blow up the bond market if left untreated long enough.

In an unsettling parallel with Europe, investors have been content so far to ignore this unfolding disaster, reasoning that cooler heads will prevail.

But the risk, as we are seeing with Greece this week, is that it may soon become clear that they won't – in which case John Boehner and his pals can take credit, along with so much else, for finally killing the goose that lays America's golden flight-to-safety egg. But hey, all in a day's posturing.

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  • China adds to Treasury hoard

    Fears of runaway government spending don't seem to be weighing on China's appetite for U.S. debt.

    The biggest U.S. foreign creditor bought $23 billion worth of Treasury debt in October, bringing its official holdings of U.S. bonds to $907 billion. The latest Chinese purchases came in a month when foreign fund flows into the United States slowed to their weakest  pace since they were essentially flat in January.

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  • How the bond market could get crazier

    If you think the bond market is going nuts now, just wait till next year.

    So say economists at Morgan Stanley. They raised their interest rate forecasts Tuesday, saying the tax deal moving through Congress should goose growth and raise demand for funds. They downplayed the widely bemoaned impact on the bloated federal budget, saying the recent surge in government bond yields isn't a sign of acute concern over U.S. solvency.

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  • Moody's warns on tax cut deal

    Moody's is the latest to warn that the tax deal could imperil the United States' fiscal position.

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  • Queasy living for the bond market

    It's time for bond investors to get used to that unsettled feeling.

    Prices of U.S. government bonds were actually up modestly at midday Monday, which certainly looks like progress after last week's plunge. The yield on the 10-year Treasury note was down a couple ticks at 3.28%, after a short-lived morning spike to 3.39%.

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  • How the bond rout shows Bernanke is right

    Falling bond prices aren't mocking Ben Bernanke. They are embracing him.

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  • Don't sweat the muni meltdown

    Is the muni bond apocalypse here?

    Municipal bond prices have tumbled this month after a yearlong rally, raising fears that the tide has finally turned in the debt markets.

    Some funds that buy tax-exempt muni bonds have dropped as much as 8% in just two weeks. Funds that regularly traded at a modest premium to net asset value lately fetch a sizable discount. The rout has unfolded even as inflation, unemployment and MORE

    - Nov 19, 2010 6:02 AM ET
  • Foreigners turn to U.S. stocks

    Foreign funds continued to flood into the United States in September, as big Asian creditors added to their government bond holdings.

    Net foreign purchases of U.S. long term securities were $81 billion in September. That's down from $137 billion in August, as overseas buyers slowed their purchases of Treasury bonds. Net foreign Treasury purchases fell by more than half in the latest month.

    But overseas investors also stepped up their pace of stock purchases, MORE

    - Nov 16, 2010 11:39 AM ET
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