When risk of financial markets rise, money moved to safety and most went to US Treasury securities as safe haven. Prices of these securities rose because of demand chasing up the prices. Because bond prices moved in opposite direction as bond yield, Treasury Security Yield will head south.
Looking at US 10-year Treasury Securities over this year, the treasury yield started the year at 3.36%. This yield stayed above or near to 3.0% for most part of the year until August when it declined significantly to just above 2.0%. By 22 September the yield dropped to its lowest at 1.72%. (To understand this drop, see next paragraph.) Since then the yield hovered around the 2.0% mark.
It was in 21 September Federal Open Market Committee Meeting that the Federal Reserve Board (Fed) planned to carry out Operation Twist to flatten the yield curve for the longer tenor Treasury Bonds. Fed plans to buy US$400 billion of Treasuries of 6 years to 30 years duration and selling the equivalent amount of Treasuries of shorter maturities of less than 3 years. This exercise is to last until end of June 2012.
As at last Friday (16 December), the yield moved down again to end at 1.86%. This suggests the financial market players were still jittery over the health of the financial markets, in particular with the sovereign debt crisis of the Euro zone economies.
If this is the case, investors need to be concerned about the state of the financial markets.
Copyright © 2011, limkimtong for Living Investment
The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.