Interest rates fall, investors seek safety

US Treasury prices soared on Friday, pushing interest rates lower, as investors sought shelter from the latest market turmoil caused by worries over Europe’s economy.

By (AP)

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Published: Sat 15 May 2010, 5:03 PM

Last updated: Mon 6 Apr 2015, 9:27 AM

Traders are dumping stocks and other risky assets because of concerns that the deep spending cuts being called for in countries like Greece, Spain and Portugal will slow down a recovery in Europe. The Dow Jones industrial average lost about 163 points and crude oil was down more than 3 percent.

Currency traders have been selling off euros throughout the week on growing doubts that Europe will be able to grow its economy out of recession and restore confidence in its shared currency, the euro.

The euro initially jumped early in the week following news of a $1 trillion bailout package from the European Union and International Monetary Fund aimed at containing Greece’s debt crisis with cheap loans to struggling European countries.

But ever since then traders have worried that sharp cutbacks in government spending required by the bailout plan could lead to more civil unrest and hamper the ability of European countries to stimulate their economies. More strikes are already in the works in Greece and Spain because of the planned cutbacks in pensions and other public benefits.

The euro, which is used by 16 countries, fell to a 19-month low against the dollar Thursday and is trading close to its lowest levels in four years.

Historically safe investments like Treasurys benefited from the flight to quality.

The yield on the 10-year Treasury note that matures in February 2020 fell to 3.46 percent late Friday from 3.53 percent late Thursday. Its price rose 62.50 cents to $100.3125. Bond yields rise when their prices fall.

The yield on the 10-year note is often used as a benchmark for setting interest rates on consumer loans and mortgages.

The increased concern about the health of Europe’s economy overshadowed positive U.S. economic reports. Investors had been selling off Treasurys and moving into riskier assets in recent months because of signs that the U.S. economy was strengthening.

The Commerce Department said retail sales rose 0.4 percent in April, double what economists by Thomson Reuters had forecast. It was the seventh straight monthly rise in sales, adding to hope that consumers are getting more confident in the economy.

The Federal Reserve said industrial production rose 0.8 percent last month, which was the biggest jump in output from the nation’s factories, mines and utilities since January.

In other trading, the yield on the 2-year note that matures in April 2012 fell to 0.79 percent from 0.84 percent, and its price rose 6.25 cents to $100.40625.

The yield on the 5-year note that matures in April 2015 fell to 2.16 percent from 2.25 percent. Its price rose 40.625 cents $101.59375.

The 30-year bond yield fell to 4.34 percent from 4.43 percent. Its price surged $1.5625 to $101.5625.

The yield on the three-month Treasury bill that matures August 12 fell to 0.14 percent from 0.15 percent. Its discount rate was 0.15 percent.