Interest rates on long-dated Treasury bonds have been unable to rise the past two months as global investors have remained cautious. With low inflation readings and weak global economic data, investors have favored sovereign debt in the U.S. and Germany over other asset classes, such as equities.
Manufacturing data released Monday highlighted potential weakness in the world's two largest economies. The Chinese manufacturing figure was 49.5. Any reading below 50 indicates contraction, suggesting that factory output actually declined from the month before. Meanwhile, expectations for new U.S. factory orders declined by its largest margin in 30 years.
The news from China and the U.S. led to a decline of 2% in the SPDR S&P 500 (SPY) Monday, while iPath S&P 500 VIX ST Futures ETN (VXX) -- an indicator of anxiety -- spiked to its highest price level in six months.
Although the Federal Reserve is cutting its stimulus program, investors don't see the economy as being strong enough to warrant a large move higher in interest rates.
Until the global economy can start to show some continuity, with gradual improvements in both developed and emerging economies, investors will continue to seek safety in U.S. and German government bonds.