Panic Part 5 Drops Bond Yield to 4.72% - TheStreet

More panic-buying of what looks to many investors like the only safe investment left in the world drove Treasury yields deeper into record territory Monday.

As overseas and then U.S. stock markets plunged in response to a lack of decisive action by the

G7

nations at their meeting in Washington over the weekend, the benchmark 30-year Treasury bond -- whose yield has been in uncharted ground since mid-August -- tacked on more than another two points in price. Rising for the fifth session in a row, it added 2 1/32 to 112 13/32, dropping the yield 12 basis points to 4.72%. The five-year note's yield fell below 4% for the first time since January 1994. It declined to 3.97%. The two-year note's yield is still higher, at 4.04%.

"It just keeps feeding on itself without any end in sight," said John Burgess, head of fixed-income at

Bankers Trust

. "Until something substantive and credible happens, I just don't see how it's going to end any time soon, as ridiculous as it's gotten. And I do think 3.90% on the five-year note is ridiculous. But it's not about price anymore, or yield. It's about knowing you're going to get your principal back."

Substantive and credible action is required, Burgess said, in Japanese banking reform, in the G7 and

IMF

handling of financial crisis situations, in the

Clinton

perjury investigation and by the

Fed

. "Since all this started happening, the only thing we've gotten is a 25-basis-point move by the Fed," he said. "That's not a lot."

In perspective, the long bond's yield was a full point higher at 5.72 just over two months ago, on July 30. The previous 100-basis-point move took more than a year to accomplish; the last time the 30-year bond closed with a yield higher than 6.72% was on July 1, 1997.

Moreover, of the last 100-basis-point move, 25 basis points have come in the last five days, with the balance of the gain occurring over the previous two months.

It's all the more remarkable considering that as yields go lower and lower, it takes larger and larger price movements to budge the yield by the same amount.

Falling stock prices were the primary driver of the day's gains, although the fact that the long bond benefited as much as short-maturity notes, which carry less interest-rate risk, signified "panic-type" buying, said Roseanne Briggen, market strategist at

MCM Moneywatch

.

Market-watchers also cited the bankruptcy filing of

Criimi Mae

(CMM)

, a Rockville, Md.-based real-estate investment trust, following heavy losses on investments in commercial mortgage-backed securities, as a major factor in the day's move.

"That really prodded the surge in the afternoon session," Briggen said. "It made people really nervous, so a real flight-to-quality bid came into the market." Briggen said when the Criimi Mae story hit the wires shortly before noon, an extraordinary $1 billion of when-issued two-year notes, the ones the Treasury will issue on Oct. 21, traded in full view. "Who knows what traded other places," she said.

There were no market-moving economic data and none are scheduled for Tuesday.

The last of the auto dealers reported their September sales results. The totals: Cars sold at a $7.0 million annual pace, up from $6.4 million in August, and light trucks sold at a $6.8 million annual pace, up from $6.0 million in August. The September numbers represent a continued rebound after the

General Motors

(GM) - Get Report

strike depressed the July and August numbers. It's not worrying Treasury traders, though, because they are counting on the recent downturn in consumer confidence to depress auto sales in the months ahead.

The

National Association of Purchasing Management's

still-new monthly index of service-sector activity rose to 59.0 in September from 52.0 in August, where 50 signifies no change in the level of activity.

The weekly

ISI Index

of cyclical business activity, which has been in decline since May, dropped to 46.9, its lowest level since January.

The only reports on tap for Tuesday are the weekly retail sales reports for the final week of September from

BTM/Schroder

and

LJR Redbook

.