The 10-year Treasury yield continued tumbling yesterday, falling below 4.6%, the lowest since late-February. The general catalyst: mounting worries about an economic slowdown. But yesterday’s buying spree in bonds also found some unexpected support from the Greenspan effect.
Former Fed Chairman Alan Greenspan reportedly made comments Thursday evening about the prospects for a Fed rate cut, according to the Wall Street Journal. Rumors of the talk, delivered at a conference at Drake Management in New York, apparently inspired a fair amount of the buying yesterday that pushed yields lower (bond yields and prices move inversely). Nonetheless, there’s some debate about what exactly Greenspan said on Thursday. The complete Journal story (available only to subscribers) notes that “two people who attended the event where Mr. Greenspan spoke said he didn’t say anything about likely actions by the Fed, as some rumors suggested.”
Nonetheless, rumors are a potent force these days as questions swirl about what comes next for the economy. Nature abhors a vacuum, and so do bond traders. Ours is a moment when buying Treasuries first and asking questions later is the preference du jour. The fad will continue until (and if) there’s compelling evidence to rethink the trade. Meanwhile, momentum is alive and kicking (again).