Bond prices reflect fears of economic slowdown

U.S. bonds.

Tess Vigeland: T-bills. Got a mortgage? You're loving them. Got a money market account? Not so much.

But demand for safe-haven Treasury bonds is so strong this week that investors are snapping them up at less than 3 percent interest. Our New York bureau chief Heidi Moore reports on the broader effects of the T-bond trend.


Heidi Moore: There's a saying that if you have a big hammer to swing, everything starts to look like a nail. The Federal Reserve has a lot of nails to pound down: it's trying to fix the unemployment problem, goose the housing market and make sure you're not paying too much at the pump. The Fed is trying to attack all these nails with the same hammer: low interest rates.

Here's Jeff Layman. He's the chief investment officer of BDK Financial. He says the Fed hoped low interest rates would spur banks to lend and companies to hire more workers.

Jeff Layman: The Federal Reserve's intent has been to keep rates low, because that's one of the ways you can prompt more activity in the economy.

We all know it didn't quite work out that way. The outlook for the recovery is getting worse.

Greg McGreevey: Treasuries are reflecting some underlying conditions in the economy.

That's Greg McGreevey, the president of Hartford Investment Management.

The lower interest rates are good for the government. Its borrowing costs are falling just as people are worried about the deficit. And the Treasury rate is directly connected to the mortgage rate. Just today, Freddie Mac said the average rate for a 30-year home mortgage fell to its lowest point this year. That's good for homebuyers -- if they can persuade a bank to give them a loan.

Layman, of BDK, says it can also be good for existing homeowners.

Layman: Refinance your mortgage to a very low rate.

But these low rates are punishing people who save. Savings accounts pay almost nothing now. Layman says he fields calls from frustrated clients who expected Treasury bonds to carry them through their retirement. As a result, some retirees are moving their money into riskier investments.

Here's McGreevey again.

McGreevey: Rather than buying Treasuries at 3 percent, because that doesn't provide enough income for retirement, they go out and buy high-yield bonds.

Tomorrow, the new unemployment numbers will be the next indicator of where interest rates -- and the economy -- are headed.

In New York, I'm Heidi Moore for Marketplace.

About the author

Heidi N. Moore is The Guardian's U.S. finance and economics editor. She was formerly the New York bureau chief and Wall Street correspondent for Marketplace.

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