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.
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.
The latest market upheaval has some investors seeking refuge in a sector that has spent six months getting tagged as toxic – municipal bonds.
The widely discussed threat that stretched state and local governments will default hasn't gone away, obviously. But the premium valuations that prevailed in the muni sector for much of last year have, thanks to a wave of year-end selling spurred by tax changes, heavy deal flow and a rash MOREColin Barr - Mar 17, 2011 6:35 AM ET
Could the United States and China be even more co-dependent than we thought?
On Wednesday Fed chief Ben Bernanke became the first American official in recent memory to admit just how deep a hole we have dug ourselves with our biggest creditor.
Bernanke said China holds at least $2 trillion of U.S. government bonds. That is more than double the widely cited official figure, which is published monthly by Treasury.
As staggering as Bernanke's number is, his MOREColin Barr - Feb 9, 2011 5:11 PM ET
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.
All told, foreigners bought a net MOREColin Barr - Dec 15, 2010 11:11 AM ET
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.
But MOREColin Barr - Dec 15, 2010 5:50 AM ET
Moody's is the latest to warn that the tax deal could imperil the United States' fiscal position.
The rating agency said in a report Monday that last week's agreement between the White House and congressional Republicans should bolster economic growth in the next two years – but at the expense of the nation's already perilous budget position down the road.
The agreement to extend the Bush tax cuts for two years and MOREColin Barr - Dec 14, 2010 9:09 AM ET
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%.
But Monday's rebound doesn't say the carnage is done with. Investors who started banking on handsome bond MOREColin Barr - Dec 13, 2010 1:07 PM ET
Falling bond prices aren't mocking Ben Bernanke. They are embracing him.
Bonds have sold off steadily over the past two months, taking the yield on the 10-year Treasury note to its highest levels since the spring. The yield was up 5 basis points Friday at 3.27%, which is nearly a full percentage point above its October low.
At the same time, inflation expectations as measured by the yields on inflation-protected Treasury securities have risen as MOREColin Barr - Dec 10, 2010 10:39 AM ET
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 MOREColin Barr - Nov 19, 2010 6:02 AM ET
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, MOREColin Barr - Nov 16, 2010 11:39 AM ET
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