Tuesday, April 28, 2009

Treasury Rates and Investor Sentiment

Treasuries at the longer end of the curve rallied strongly and rates came down sharply (see chart above) in mid-March, when the Fed announced a quantitative easing policy. Since that time, however, stocks have rallied steadily and 10-year rates have crept back to the 3% range.

This is another example of a nice sentiment gauge: as traders and investors fear economic decline, they seek a safe haven in Treasuries and rates fall. When confidence in economic recover takes center stage, traders and investors are willing to pursue riskier assets and sell Treasuries, pushing rates higher.