Demand for U. S. Government notes and bonds (Treasuries) has been robust causing market value and total return to increase significantly as illustrated.
TOTAL RETURN YEAR
DESCRIPTION TO DATE THRU 12/05/2011
iShares 3-7 Year Treasury Bond Index 7.69%
iShares 7-10 Year Treasury Bond Index 13.79%
iShares 10-20 Year Treasury Bond Index 19.41%
iShares 20+ Year Treasury Bond Index 30.39%
Standard & Poor's 500 Index 1.91%
Thompson Reuters/Jefferies CRB Commodity Index -5.95%
The sought after safety of Treasuries is driven by concern the world economy is on the cusp of another financial crisis. Treasuries "risk off" have been moving opposite the stock and commodity markets "risk on" since 2008.
During the week of November 28th, the euro debt crisis reached a new stage with the failure of the German Government bund (bond) auction and the alarming rise in short-term government bond interest rates in Spain and Italy.
November 30th the cost for European banks to borrow in dollars rose to the highest level in three years for concern the euro currency union may break up after leaders said they had failed to increase the bailout fund as planned.
November 30th the Federal Reserve, the European Central Bank, Bank of Canada, Bank of England, Bank of Japan and Swiss National Bank reduced a key interest rate (dollar overnight index swap rate) enhancing European banks access to U. S. dollars.
Be mindful that European access to U. S. dollars is critical because we have close financial ties. For example, approximately 34% of the $2.1trillion in U.S. uninsured money market assets is invested in European financial and industrial short term loans. Without favorable access to U.S. dollars, European banks and industrial corporations will not be able to pay the interest and principal on U.S. loans.
December 5th Standard and Poor's put Germany, France and 13 other euro-area nations on review for a rating downgrade saying "continuing disagreements among European policy makers on how to tackle" the regions debt crisis risk is damaging their financial stability.
We think safety is paramount and recommend investing in US Treasuries and/or high quality US dollar denominated corporate bonds. Due to the chance another financial crisis in Europe could affect world financial markets, we recommend selling international investments.
Sincerely,
Joseph Garbacz Daniel Garbacz
