Long-Term Treasurys Roar Ahead
Worries about a drawn-out recession and the prospect of deflation gave Treasurys a boost, with the 30-year bond rocketing higher.</br></br>Minutes from the Federal Reserve, which suggested further interest-rate cuts, added to the government-bond market's gains, as did the sharp falls in stocks. The Fed also downgraded both its growth and employment forecasts, signaling that weakness in the economy will persist into 2009. As investors sought safety in Treasurys, bond yields, which move inversely to prices, fell across the board.</br></br>The benchmark 10-year Treasury note saw its yield fall to 3.390%, from 3.537% Tuesday, as the price rose 1 8/32 points, or $12.50 for every $1,000 invested, to 103 1/32. The 30-year bond surged 3 5/32 points, or $31.5625 for every $1,000 invested, to 109 4/32, to yield 3.972%, from 4.147% Tuesday. The two-year yield fell to 1.110%, the lowest since June 13, 2003.</br></br>Worries about deflation sent the 10-year break-even rate, the yield spread between the 10-year Treasury inflation-protected securities and 10-year nominal Treasurys, to a low of 0.37 percentage point, the lowest level since the Treasury Department started to sell TIPS in 1997.</br></br>The gap suggests investors expect an average annualized inflation of 0.37% over the next decade, adding to the shift over the past few months from inflation concerns to deflation worries.