Increasing US treasuries usher optimism for stock market
United States, 17th September: US Treasury yields surged up to a four-month high as investors preferred to shift their funds to relatively riskier stocks.
Dismal US job market reports–Treasurys went up amidst speculations of increased bond-buying stimulus following last week’s US job figures. There have been reports of an increasingly high number of Americans coming to claim unemployment benefits.
The US Reserve forwarded a bond purchasing scheme this Thursday. Aim of this program is to make monthly purchases of $40 billion mortgage-backed securities. This should continue unless and until better conditions prevail in the US job market.
As on Friday, bond yields went to 3.09 percent after having been at 2.68 percent at the beginning of the trading this month. Similar was the case with bellwether 10-year bond yields moved up 1.80 percent after having nosedived 1.40 percent this summer.
30-year bond moved 12/32 to gain 2.908 percent. And the two-year notes went up to 1/32 to gain 0.234 percent.
Rising yields—what do they indicate?—Rise in treasury yields comes after the Federal reserve announced to give a stimulus to the struggling economy by purchasing mortgage bonds along with restricting short-term interest rates to near zero at least for the coming three years.
And taking a quick clue from this move, investors reacted sharply to begin placing their bets into the riskier stock market while preferring to say goodbye to Treasurys.
The selling of 10-year Treasurys is not anything new. In fact, the trend has been visible since July this year after the yields plunged down to 1.39 percent.
In the last month, yields on 10-year-notes have continued to remain glued between 1.5 percent and 1.8 percent.
People are worried and waiting with their fingers crossed as to how the things take a turn in the coming times. Although, hopes of a federal stimulus do usher in a note of optimism in the market, it is being feared that such a move could also lead to inflation.
Financial analysts are worried about the impact of QE3 (a third round of quantitative easing). The previous rounds of quantitative easing have failed to bring down US jobless levels. And this is something to worry about as far as the market is concerned.