Investors Now Seem to be Seeking Security in Bonds
Monday, August 20, 2007SUSIE GHARIB: Another volatile day on Wall Street. Stocks fell, then rallied, with the Dow closing up 42 points. But the real action today was in the bond market, where yields on Treasuries had their biggest one-day drop in 20 years. Investors sought the safety of Treasuries, and that very strong demand pushed the yield on the three-month Treasury below 3 percent in intra-day trading. It was at 4.7 percent just a week ago. Scott Gurvey reports.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Treasury bond traders found themselves the most popular kids on the block today -- if, that is, they had something to sell. Investors of all sizes turned to government securities as a haven safe from the uncertainties of the stock and corporate debt markets. Demand for Treasuries drove short-term yields down 54 basis points to 3.17 percent, a bigger decline than the one on 9/11 or on the day of the stock market crash of 1987. Bond market strategist Tony Crescenzi of Miller Tabak, says there was no particular news to drive today's trading, just a continuing sense of fear.
ANTHONY CRESCENZI, CHIEF BOND MARKET STRATEGIST, MILLER TABAK: The psychotic atmosphere still exists in the credit markets. Investors are still lured to riskless assets and are steering clear of riskier assets, buying Treasuries only. Commercial paper buyers are on strike. They're instead buying T-bills. So basically there is still a lot of fear in the markets and it is reflected in T-bills, which many people have very low fear in purchasing.
GURVEY: The freeze in the commercial paper market has the potential to impact the economy. Chrysler automotive and Alison transmission are just two of the 20 or so big firms which have been unable to issue these short- term securities for working capital in the last few weeks. If investors, especially the money market funds which often purchase these securities, do not return to the market, corporations may find themselves short of operating funds. Robert Polenberg of Standard & Poor's says there is a lot of commercial paper waiting for the market to thaw.
ROBERT POLENBERG, DIRECTOR, LEVERAGED LOANS, STANDARD & POOR'S: You also have the concern that there are over $230 billion in loans that are on the forward calendar in the syndicated loan market at this point, so you have these hung deals, plus the $240 billion. We have a lot of paper being come into market in the near future and the question is, where is the liquidity going to come from to bring these deals?
GURVEY: In another move to increase liquidity, the Fed today said it will redeem and not reissue $5 billion in Treasury bills which come due on Friday. It hasn't done that since the liquidity crisis which followed 9/11. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
