The big story in the market right now is oil.
But there is another major move in markets that has flown a bit under the radar: US Treasury bonds.
The yield on long-dated US Treasury bonds — meaning the 10- and 30-year bonds — has been falling sharply over the last week.
When long-dated bonds rally, it is taken as a sign that investors are “fleeing to safety” or “seeking protection,” as US Treasury bonds are considered the safest investment you can make.
On Friday, the 30-year bond was pushing to new lows, with the yield hitting 2.76%, the lowest since the fourth quarter of 2012, or about two full years ago.
The yield on the 10-year bond was also grinding lower, falling to as low as 2.09% on Friday.
On October 15, the crazy day in the market that saw the 10-year yield “flash crash” to as low as 1.86%, the 10-year settled at 2.14%, so a close below that level would mark a new low in what has been a huge year for Treasuries.
Unlike stocks, bonds are “rallying” or “gaining” when yields fall, while stocks “rally” or “gain” when prices rise.
And so while the stock market usually garners the most headlines, investors are increasingly watching the bond market, as strength in longer-dated Treasuries indicates increasing concern about the short-term prospects for the economy and other assets.
But there are some other dynamics to keep in mind.
DoubleLine’s Jeff Gundlach has posited that with European bond yields considerably lower than US bonds, there is no reason for US yields to rise. “It seems almost unthinkable to me that rates would go up against a backdrop of Spanish 10-year yields that are less than 2%,” Gundlach told CNBC in November.
Additionally, if Treasuries are priced based on expectations of growth, interest rates, and inflation, then the declining price of oil, which is expected to tamp down inflation next year, it makes some sense that Treasury yields would fall.
And as the old market saying goes: “Treasuries are always right.”