Bond Yields Plunge Amid Falling Rates World-Wide; Declines, Slack Investment By Business Fuel Concerns Over a Global Slowdown
For months, pessimistic bond markets and optimistic central bankers have been in a tug of war over where the world economy is headed. A renewed plunge in long-term interest rates world-wide suggests the pessimists are winning.</br></br>Government bond yields in the U.S., the euro zone and Asia have all fallen sharply in recent weeks, fed by a diet of disappointing economic data, lackluster business investment and -- in a new development yesterday -- hopes that the Federal Reserve will soon take a break from raising interest rates.</br></br>The decline in long-term interest rates mystifies central bankers -- even Fed Chairman Alan Greenspan. They see creeping inflation risks and a still-robust outlook for the global economy outside of Europe. And they're increasingly concerned that low long-term rates are also fueling an unsustainable surge in housing prices.</br></br>Prices of 10-year Treasury bonds jumped yesterday and yields, which move in the opposite direction, tumbled to 3.89%, from 4% Tuesday. That's the lowest since March last year, before the first of the Fed's eight quarter-percentage-point interest-rate increases. The drop came after Richard Fisher, new president of the Federal Reserve Bank of Dallas, said that the Fed is in the "eighth inning" of raising rates, suggesting he believed an increase by the Fed later this month might be its last. Investors expect the Fed to boost its target for the federal-funds rate, charged on overnight loans between banks, to 3.25% from 3% at its meeting on June 29 to June 30.</br></br>Mr. Fisher's comments are at odds with those of other Fed officials who have emphasized that interest rates are still too low to ensure low inflation. But his remarks reinforced a view of many bond traders and a few economists that economic growth in the U.S. is slowing and inflation is ebbing, both of which will lead the Fed to take a pause from raising rates.