Risk aversion pushes 10-yr US govt yields below 2%

Tuesday, January 06, 2015

Continued weakness in the crude oil market placed considerable pressure on global equity markets once again today with European equities starting the session on the back foot. Major benchmark indices including London’s blue chip index, the DAX and the CAC 40 traded in negative territory early on but since managed to recover some of the lost ground towards the afternoon, despite the overbearing risk averse sentiment.

Improving demand for safe haven assets saw spot gold prices find firm support early on, trading towards the 100 day MA at $1,215/oz at one stage before pulling back to just above $1,210/oz, posting modest gains of 0.4% as we neared the end of the European trading session. The Japanese yen and Swiss franc also saw firm flows throughout the day as investors sought out lower risk assets amid the recent spike in volatility.

In the US, 10 year treasury yields fell for the seventh straight session today, trading below 2% for the first time since mid-October and on track to settle below this historic level for the first time since May 2013. The flight to safety has seen ten year treasury yields drop from 2.2721% to 1.9626% over the past seven sessions as trading activity picked up on concerns regarding the Greek elections and prospect of QE from the ECB. With deflationary pressure threatening some of the world’s largest economies as the oil market continues to sell-off, we could see further declines in benchmark treasury yields as investors, spooked by the recent spike in market volatility, pile into government backed securities.

At the time of writing, US equity markets were trading slightly higher in an effort to recover some of the recent heavy losses which saw Wall Street benchmark stocks register their largest one day declines in over two months. Investors, having sold off both the S&P 500 and DJIA significantly in the past few sessions, are quietly hopeful that today’s PMI data releases will provide the necessary support for any potential recovery. 

US 10 year treasury yields fall below 2% on flight to safety

USGG10YR Index US Generic Govt 2015 01 06 15 18 58

Spot gold prices hold firm around $1,210/oz

XAU Curncy Gold Spot Oz 2015 01 06 15 19 10

Topics: Gold, ECB, Treasuries
More from: Kash Kamal