The reason that you will often see the yields on Treasuries fall when you see a financial crisis in an emerging or foreign market is due to what is known as a flight to quality. A flight to quality occurs when market participants move their money from higher risk, or lower quality, investments to lower risk, or higher quality, investments, which is usually triggered by an event in the higher-risk market. (For related reading, see Panic Selling - Capitulation Or Crash?)

When there is a crisis in the emerging markets, such as a geopolitical problem or a financial meltdown, you will often see the market participants in that market sell out and move their money to a safer place. To many, one of the safest places is in U.S. Treasuries, which are government backed debt instruments. As money flows into Treasuries their prices rise, which leads to a decrease in yields. (To learn more about this process, see Advanced Bond Concepts: Yield And Bond Price.)

Remember that with bonds, the price of a bond and its yield have an inverse relationship with each other. Generally, the reason for this is that no matter what happens to the price of the bond over its life, it will still pay the same amount in coupons. Therefore, when the price rises the percent of this payout, or yield, to the price of the bond will decrease.

  1. Why are treasury bond yields important to investors of other securities?

    Learn about the wide-ranging impact of U.S. Treasury Bond yields on all other interest-bearing instruments in the economy ... Read Answer >>
  2. What is the relationship between the current yield and risk?

    Discover the relationship between a bond’s current yield and risk, and how investors can use it to benefit their overall ... Read Answer >>
  3. Which economic factors impact treasury yields?

    Discover the economic factors that impact Treasury yields. Treasury yields are the benchmark yield for the rest of the world, ... Read Answer >>
  4. Are high-yield bonds better investments than low-yield bonds?

    Most bonds typically make periodic payments, known as coupon payments, to the bondholder. A bond's indenture, which will ... Read Answer >>
  5. What causes a bond's price to rise?

    Learn about factors that influence the price of a bond, such as interest rate changes, credit rating, yield and overall market ... Read Answer >>
Related Articles
  1. Investing

    Investing Basics: Flight To Quality

    At times of market stress, investors flee from risky assets to investments the safest ones available.
  2. Investing

    Understanding Treasury Yield

    Treasury yield refers to the return on an investment in a U.S. government debt obligation, such as a bill, note or bond.
  3. Investing

    Find The Right Bond At The Right Time

    Find out which bonds you should be investing in and when you should be buying them.
  4. Investing

    An Introduction To Emerging Market Bonds

    The rewards associated with this fixed-income asset are significant, but so are the risks.
  5. Trading

    The U.S. Dollar And The Yen: An Interesting Partnership

    In order to make the USD/JPY relationship more understandable, we must look at the yen in terms of treasury bonds.
  6. Insights

    Why the 10-Year US Treasury Rates Are Crucial

    10-year treasury bond yields are important indicators of the economy as a whole.
  7. Investing

    Understanding Bond Prices and Yields

    Understanding this relationship can help an investor in any market.
  8. Small Business

    What's Involved in Quality Management?

    Essentially, quality management entails overseeing all activities and tasks needed to maintain excellence.
  9. Managing Wealth

    Finding The Best Yields

    Using yields to supplement earnings can mean big bucks, with the right strategy.
  1. Flight To Quality

    The action of investors moving their capital away from riskier ...
  2. Treasury Yield

    The return on investment, expressed as a percentage, on the debt ...
  3. Credit Quality

    One of the principal criteria for judging the investment quality ...
  4. Bond Yield

    The amount of return an investor will realize on a bond. Several ...
  5. Required Yield

    The return a bond must offer in order to be a worthwhile investment. ...
  6. Yield Spread

    The difference between yields on differing debt instruments, ...
Hot Definitions
  1. Nest Egg

    A substantial sum of money that has been saved or invested for a specific purpose. A nest egg is generally earmarked for ...
  2. Denial Of Service Attack (DoS)

    An intentional cyberattack carried out on networks, websites and online resources in order to restrict access to its legitimate ...
  3. Perkins Loan

    A loan program that provides low-interest student loans to undergraduate and graduate students who demonstrate exceptional ...
  4. Wealth Management

    A high-level professional service that combines financial/investment advice, accounting/tax services, retirement planning ...
  5. Assets Under Management - AUM

    The market value of assets that an investment company manages on behalf of investors. Assets under management (AUM) is looked ...
  6. Subprime Auto Loan

    A type of auto loan approved for people with substandard credit scores or limited credit histories. There is no official ...
Trading Center