Collapse in longer-term Treasury yields sends ominous signal

Stocks are falling and investors are running into the arms of Treasuries, seeking safety in the midst of economic turmoil.

Not what one might have expected last month amid fears that the growing federal budget deficit might scare away foreign buyers.



We can discern two things:

1. The U.S. Treasury market remains a safe-haven, even as the U.S. budget deficit explodes.
2. The bond market is running scared, fueled by fears that another recession is imminent.

The weak economic data, starting with the downward revision to GDP, which was then followed up by a disturbing report on manufacturing, has definitely gotten the attention of Fed officials who had been anticipating a pickup in activity later in the year.

Throw in the sudden rush into Treasury bonds and you have wonder if Bernanke and Co. are starting to panic.

Jobs data on Friday may hold the key to whether the Fed will announce new plans to boost the economy.

Inflation expectations have not plummeted along with Treasury yields, but at this juncture, you have to say the odds seem to favor some type of action.