Treasury bond yields dive as buyers keep swarming

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The plunge in government bond yields accelerated Monday as investors faced up to more disappointing news on the global economy.

The 10-year Treasury note yield has dived to a new 16-month low of 2.58% from 2.68% on Friday. The 2-year T-note is at a record low of 0.49%, down from 0.52% on Friday.

The stock market has stabilized after last week’s slump, but that isn’t dimming the ravenous appetite for the perceived safety of government bonds.

Here’s the year-to-date score, through Friday: Pimco Total Return bond fund, up 7.9%; Vanguard 500 Index stock fund, down 2.1%.

Japan’s report that its economy grew at a mere 0.4% annualized rate in the second quarter just reinforced fears of a spreading slowdown that could, at worst, tip the world back into recession.

Meanwhile, a Federal Reserve index of New York-area manufacturing activity in August rose from July, but sub-indexes measuring new orders and shipments both fell sharply.

Separately, a National Assn. of Home Builders’ index of builder sentiment sank to 13 this month, down from 14 in July and the lowest since March 2009. The index has tumbled from 22 in May, when the industry was still seeing the benefits of the now-expired federal tax credit for home buyers.

Adding more fuel to the Treasury market’s fire: The government’s report on foreign investors’ purchases and sales of U.S. stocks and bonds in June showed a net outflow from stocks but a net inflow into -- what else -- longer-term Treasury securities.

The biggest bond dealers on Wall Street still seem to think that Treasury yields will rebound somewhat by the end of the year. A Dow Jones Newswires survey of 18 dealers late last week found that the median year-end forecast for the 10-year T-note was 2.88%, down from 3.75% in a June survey.

But as Monday’s market action is demonstrating, there still are plenty of bond buyers who think the greater risk is waiting to get in and having to settle for even lower yields. And besides, Treasury-bond bulls now have the Federal Reserve back on their side.

-- Tom Petruno