The 10 Year Treasury is Back at 1.85%

by Marilou Moursund on March 27, 2013

in Credit Crisis,currencies,Foreign Markets

Downward pressure on European markets is sending investors back to U.S. Treasury bonds this morning.  According to Ed Yardeni, the continued strength in the U.S. stock market has been due in part to its safe haven status:

(1) The dollar is a safe haven. The euro is no longer as safe as the dollar. So the euro’s choppy descent since it peaked at a record $1.60 is probably still intact. The trade-weighted dollar is likely to head higher. Contributing to the stronger dollar is the Japanese government’s commitment to yet another round of ultra-easy fiscal and monetary policies, which are clearly aimed at depressing the yen. 

(2) US stocks and real estate are safe havens. In 1903, a bronze tablet that bears the text of “The New Colossus” by poet Emma Lazarus was placed on the Statue of Liberty: “Give me your tired, your poor, Your huddled masses yearning to breathe free, The wretched refuse of your teeming shore. Send these, the homeless, tempest-tost to me, I lift my lamp beside the golden door!”

Nowadays, while Washington is debating immigration reform, the world’s wealthy elite are coming to America and putting more of their money here for safekeeping. Anecdotally, that’s clearly the case in the condo markets of NYC, Miami, and Los Angeles. According to the US Treasury’s TICS data, rising inflows are also starting to show up in US corporate equities purchased by foreigners. Over the past three months through January, their net purchases totaled $212.4 billion at an annual rate, with European buyers accounting for $160.4 billion.

This certainly would explain why US stocks have been rising to record highs this year, with the S&P 500 within a whisker of its all-time high. It explains why the latest bad news out of Europe seems to boost rather than depress stock prices in the US.

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