Treasury Trading Reflects Euro Fears

Trading in benchmark 10-year U.S. Treasury bonds mirrored the frantic action in the stock market Thursday, with heavy foreign demand sending yields lower.
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) -- While today's frantic trading of 10-year U.S. Treasury bonds mirrored the wacky action in the stock market in the wake of a

possibly erroneous trade


Procter & Gamble

(PG) - Get Report

shares, the overall action reflected euro zone fears.

"There's a lot of foreign money coming in," said

Tom Graff

of Cavanaugh Capital Management.

After closing at a yield of 3.55% Wednesday, the 10-year yield dropped to about 3.40% at 2:15 p.m. ET Thursday afternoon, plunging as low as 3.30%. Then, over the next 20 minutes, coinciding with the recovery of the

Dow Jones Industrial Average

, the yield rose to 3.40%, eventually closing at 3.375%.


trading error

may have occurred in P&G around the same time, exacerbating an already considerable selloff in stocks. P&G shares were quoted down almost a third, going from around $60 to below $40 in moments.

More than one trader told


that the heightened demand for U.S. bonds was centered mainly around the growing fears about the stability of Greece and the possible impact on the euro, and not the U.S. stock market.

Even though the U.S. is viewed by many in the investment community and (of course) by political pundits as being in a long-term decline, it's still the place for investors to go for an instant flight to quality.

While the Greek Parliament's approval of the austerity measures the government agreed to as part of the eurozone's bailout was greeted as good news, the fears for the long-term health of the euro are based upon the built-in contradiction of a unified currency without stronger control of spending within individual countries.

The Greek government consistently spends more than it takes in, and there are cultural factors, including a large black market, that limit tax revenue.

With the fears of other bailouts coming within the eurozone, and local populations resisting their governments' efforts to take responsible action, Europe faces the possibility of the stronger economies like Germany having to bail out the weaker economies every five to ten years.


Written by Philip van Doorn in Jupiter, Fla.

Philip W. van Doorn joined Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.