Transcripts

Investors Shift Interest From Stocks to Bonds

PAUL KANGAS: Plunging stock prices helped fuel a rally in bonds again today. U.S. Treasury debt prices rose, taking the yield on the benchmark 10-year bond to its lowest level since late March. As Suzanne Pratt reports, some experts predict the rally in government bonds will continue.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: In recent weeks, investors' appetite for high quality government bonds has heated up. UBS bond expert William O'Donnell says the bond market is now the hot place to be.

WILLIAM O'DONNELL, CHIEF U.S. RATE STRATEGIST, UBS: What we've seen is that as global commodities have fallen and the dollar has risen, we've seen a significant of new money come into the Treasury market, and a lot of it has come from overseas.

PRATT: The hunger for bonds picked up last month as investors realized economies around the world were also slowing, not just the U.S. As a result, global investors started to back away from stocks and revisit bonds. Experts say not only are U.S. Treasuries once again a safe haven, but they're also a good place to park cash as investors figure out what else looks appealing. In addition, T. Rowe Price portfolio manager Dan Shackelford says investors who would have bought Fannie Mae (FNM) and Freddie Mac (FRE) debt are now moving into government bonds.

DAN SHACKELFORD, PORTFOLIO MANAGER, T. ROWE PRICE: Given their circumstance right now, valuations in the Treasury market could reach extremes because, really, that's the only game in town that people feel that, you know, their capital will be completely safe.

PRATT: The price of the benchmark 10-year Treasury bond has rallied in the past few months. And the yield, which moves in the opposite direction to price, has fallen to the 3.6 percent level. That's after hitting a high of 4.28 percent in mid-June. Even with the recent rally in bond prices, some experts say it's not too late for a seat at the bond market table, provided investors choose short- to intermediate-term Treasuries.

O'DONNELL: We do ultimately think that front-end Treasury yields are going to fall further and, in particular, as it becomes more clear to people beyond what we believe here at UBS that the Fed is going to have to cut the funds rate further.

PRATT: Experts say it's debatable whether economic fundamentals will support a continued rally in bonds. But they also say persistent problems in the credit markets are likely to keep investors hungry for Treasuries. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.