Why the US and the decline in Treasury yields in the emerging market crisis?


When there is a crisis in emerging markets, such as geopolitical problem, or a financial collapse, you will often see market participants in this market sell and move their money to a safer place. For many investors, one of the safest places in the US that are government secured debt instruments. As cash flows into the Treasury their prices are rising, leading to lower yields.

Why The Yield On Treasury Bonds Fall?

The reason that you will often see the yields on treasuries fall when you see that the financial crisis in emerging or overseas markets due to the fact that known as the “flight to Quality”. A flight to Quality occurs when market participants will seek to move their funds from high risk (or low quality) investments in low-risk (or higher quality) investment, which usually, in the event the higher market risk.

Remember that with bonds, bond price and yield have an inverse relationship with each other. As a rule, the reason for this is that no matter what happens to the bond price for his life, he will continue to pay the same amount in coupons. So when the price rises per cent of the payments, or access to, the bond price will decrease.

(To learn more about this process, familiarize yourself with the advanced concepts of Bonds: yield and bond price.)

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