Yields hit record low: Fears ratchet up Treasury traffic

NEW YORK -- Bonds issued by Uncle Sam are once again risk-averse investors' best friend.

The fear factor is again driving trading decisions on Wall Street. Investors looking for a safe place to stash cash and a way to sidestep Europe's deepening debt crisis are dumping risky assets such as stocks and piling into the perceived haven of U.S. government bonds, driving down yields Thursday to new all-time lows.

In what Wall Street dubs the "risk-off" trade, huge amounts of capital is flowing into long-term Treasury bonds. The yield on the 10-year note, which moves in the opposite direction of price, dipped to a record low 1.69% Thursday. It hit its previous low of 1.73% on Sept. 22, when markets were fretting over issues similar to ones they are dealing with now — the possibility of Greece defaulting on its debt and dropping out of the eurozone, and the potential aftershocks from that.

Asked what's driving investors out of the stock market, where the Dow has finished lower 11 of the past 12 sessions for the first time since 2002, and into U.S. bonds, Bill Hornbarger, chief investment strategist at Moneta Group, said: "Fear over Greece. Fear over Europe. We are viewed as a safe haven."

The plunge in rates has also been driven by renewed hopes that Europe's woes and a still-tepid economy at home boosts the odds that the Federal Reserve will inject more stimulus into the system to support the economy, says Gregory Whiteley, a portfolio manager who trades government securities at DoubleLine Capital.

"It seems like every time we get to new lows (on the 10-year note) people say we can't go any lower, but we do," says Whiteley.

"Uncertainty is what motivates people to buy Treasuries," he says, adding that investors are selling riskier commodities and stocks and reinvesting the proceeds in U.S. debt.

Falling rates are good for borrowers, as they lower borrowing costs on mortgages and car loans. But they are bad for savers, who earn less interest on their bonds and cash, adds Bankrate.com analyst Greg McBride. This week the 30-year fixed-rate mortgage dropped to an all-time low of 3.79%, says mortgage buyer Freddie Mac. Car loans fell below 3%.

But 0% money market rates and record-low interest rates are a burden on retirees who need income. "You can't ask senior citizens to take risk in the stock market; it just isn't fair," says Richard Suttmeier, market strategist at ValuEngine.com.