A:

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.

RELATED FAQS
  1. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  2. What's the difference between a stop and a limit order?

    Different types of orders allow you to be more specific about how you'd like your broker to fulfill your trades. When you ... Read Full Answer >>
  3. Are secured personal loans better than unsecured loans?

    Secured loans are better for the borrower than unsecured loans because the loan terms are more agreeable. Often, the interest ... Read Full Answer >>
  4. Is Malaysia a developed country?

    Despite undergoing rapid economic development over the past five decades, Malaysia is not considered a developed country, ... Read Full Answer >>
  5. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  6. Do mutual funds have CUSIP numbers?

    The Committee on Uniform Securities Identification Procedures (CUSIP) number is a standardized identification system used ... Read Full Answer >>
Related Articles
  1. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
  2. Economics

    The 2007-08 Financial Crisis In Review

    Subprime lenders began filing for bankruptcy in 2007 -- more than 25 during February and March, alone.
  3. Mutual Funds & ETFs

    The ABCs of Mutual Fund Classes

    There are three main mutual fund classes, and each charges fees in a different way.
  4. Investing Basics

    5 Common Mistakes Young Investors Make

    Missteps are common whenever you’re learning something new. But in investing, missteps can have serious financial consequences.
  5. Mutual Funds & ETFs

    The 4 Best American Funds for Growth Investors in 2016

    Discover four excellent growth funds from American Funds, one of the country's premier mutual fund families with a history of consistent returns.
  6. Products and Investments

    A Guide to DIY Portfolio Management

    These are some of the pillars needed to build a DIY portfolio.
  7. Fundamental Analysis

    Is Brazil Currently in a Depression?

    Find out if Brazil, the world's seventh-largest economy, may have finally slipped into an economic depression, and learn the reasons why.
  8. Stock Analysis

    3 Reasons to Invest in Frontier Markets in 2016

    Learn why investing in frontier markets will be a great long-term investment as these markets grow in ways that will propel them to success in the future.
  9. Investing

    What Investors Need to Know About Returns in 2016

    Last year wasn’t a great one for investors seeking solid returns, so here are three things we believe all investors need to know about returns in 2016.
  10. Investing

    3 Things About International Investing and Currency

    As world monetary policy continues to diverge rocking bottom on interest rates while the Fed raises them, expect currencies to continue their bumpy ride.
RELATED TERMS
  1. Sortino Ratio

    A modification of the Sharpe ratio that differentiates harmful ...
  2. Foreign Exchange Reserves

    Foreign exchange reserves are reserve assets held by a central ...
  3. Golden Cross

    A crossover involving a security's short-term moving average ...
  4. A-Shares

    Shares in mainland China-based companies that trade on Chinese ...
  5. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, ...
  6. Contagion

    The spread of market changes or disturbances from one region ...
Hot Definitions
  1. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  2. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
Trading Center