By William D. Cohan | Bloomberg | 07.19.2011
Hold on for just a New York minute now and consider the powerfully serious message the bond market sent last week about the political dithering in Washington and in Europe’s capitals. “Pay attention folks,” as the investor Gifford Combs e-mailed me on Friday. “This is not a drill.”
Here are the facts: The yield on Greek sovereign debt is now at record highs for the euro era. Last week’s state-managed bond auction in Italy almost failed. And, while few seem to have noticed, the overnight repurchase market — for short-term, secured, corporate debt obligations — nearly seized up amid what Combs described as “an almost panicky scramble” for less- risky paper.
Indeed, investors’ manic desire for safety last week reached levels not seen since the most acute days of the financial crisis in September and October 2008. Ironically, though, given the pathetic display in Washington and the country’s ongoing fiscal troubles, people turned in droves to the perceived security of the U.S. Treasury market, even though it has never looked shakier.
Remember the days of negative yields on short-term U.S. paper — when effectively investors paid the government to keep their money safe? Warren Buffett considered that happenstance so rare that two years ago at the Berkshire Hathaway Inc. annual meeting he flashed a slide of a Treasury sale transaction ticket to his legion of followers.
Read the full story on the Bloomberg website.