By Jim Donnelly, Olson Global Markets

As the sovereign debt crisis intensifies in Europe, investors continue to shed equity holdings opting instead for fixed income investments. That has helped push U.S. Treasury yields to ever lower levels. While this trend has already forced a number of extreme technical readings to emerge, the current trend does not appear to be over just yet. The S&P 500 Index itself could be headed for a test of key trend line support near the 1,074 level, with U.S. Treasury note yields targeting a move toward long-term “channel bottom” support now seen at the 1.50% area.

No doubt the recently announced Fed policy called “operation twist” has had a hand in the most recent push toward lower long-term yields. This trend, however, has been in place since the S&L crisis of the early 1990’s. Capital “preservationists” have also stayed the course despite years of warnings from various market observers.

Worries over the “threat of cascading default(s), bank runs and catastrophic risk”, as U.S. Treasury Secretary Timothy F. Geithner put it, have nevertheless acted to panic investors as much as to heighten the sense of urgency for government policy makers in Europe to quickly back the European Central Bank to prevent further economic turmoil.

In any event, a move toward the 1.50% level for U.S. Treasury 10-year notes appears to be “in the cards”.

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