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. 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. 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 >>
  3. 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 >>
  4. How is the interest rate on a treasury bond determined?

    Explore the difference between interest rates and bond coupons, what determines current yield on debt instruments, and why ... Read Answer >>
Related Articles
  1. 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.
  2. Investing

    Investing Basics: Flight To Quality

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

    The Importance Of U.S. Treasury Rates

    U.S. Treasury bond interest rates affect more than just bondholders! It impacts the day to day lives of all consumers.
  5. Insights

    Why the 10-Year U.S. Treasury Yield Matters

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

    Investing in an Age of Low Interest Rates

    These are the effects of low interest rates and Treasury yields on your investments and financial future.
  7. Investing

    How Bond Yields Could Topple the Stock Market

    Bond yields have reached a crucial point since the election that could be bad news for the stock market.
  8. Investing

    Understanding Bond Prices and Yields

    Understanding this relationship can help an investor in any market.
  9. Investing

    Understanding the Different Types of Bond Yields

    Any investor, private or institutional, should be aware of the diverse types and calculations of bond yields before an actual investment.
  10. Managing Wealth

    Finding The Best Yields

    Using yields to supplement earnings can mean big bucks, with the right strategy.
RELATED TERMS
  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. Yield Spread

    The difference between yields on differing debt instruments, ...
  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. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with ...
Hot Definitions
  1. Block (Bitcoin Block)

    Blocks are files where data pertaining to the Bitcoin network is permanently recorded.
  2. Fintech

    Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century.
  3. Ex-Dividend

    A classification of trading shares when a declared dividend belongs to the seller rather than the buyer. A stock will be ...
  4. Debt Security

    Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount ...
  5. Taxable Income

    Taxable income is described as gross income or adjusted gross income minus any deductions, exemptions or other adjustments ...
  6. Chartered Financial Analyst - CFA

    A professional designation given by the CFA Institute (formerly AIMR) that measures the competence and integrity of financial ...
Trading Center