With the 10-year Treasury yield reaching lows not seen since the collapse of Lehman Brothers in 2008, some experts argue that a volatile economic climate with a recession is now likely.
"It is much more structurally worse now than in 2008. Back then it was about liquidity. Today we don't have much in the way of ammunition left at the Fed. We now have a better than 50 percent chance of the US economy entering a recession ,” said JJ Burns, chairman at JJ Burns.
"Looking back, quantitative easing one worked and we needed it. I don't think QE2 worked and now we're up to quantitative easing three and it is not going to work. There are few bullets left," Burns told CNBC.
US Treasurys rebuffed the downgrade of US debt by credit rating agency Standard & Poor'sfrom triple-A to AA+ earlier this month as yields continued to fall and reached 2.03 within the last week before recovering to hover around 2.28 percent Tuesday. It is those lows, the result of a flight to safety, that have prompted speculation of a worsening economic climate.
"Some out there think we have never been out of a recession, I don't think the US can avoid it. Businesses are beginning to hunker down and are not hiring and it's a case of trying to shore up what they have just to keep their businesses running,” Burns said. “Unemployment is likely to persist and we are in a frugal economy right now.”
He added that market volatility would continue into next year because no significant solutions exist.
"Overall going into 2012, especially an election year, we are going to see a lot more volatility. We have serious structural problems between America and the euro zone that are just not being fixed appropriately," he said.
This view was echoed by Lynn Ballou, managing partner at Ballou Plum Wealth Advisors, who said a failure of political leadership in the US was fueling market turbulence.
"If we can restore some sanity and get some clarity from our leaders it would restore some calm to the markets. The Federal Reserve has kicked the can forward and said that for 15 months there will be no increase in interest rates, which I really disagree with. What that says is that things are a mess and they are going to be a mess for at least 15 months, which does not encourage business or consumers to spend," she said.
Despite the downgrade by S&P, the likelihood of the US government being unable to pay its debts is unthinkable, according to most market watchers. The US Treasury market remains one of the largest and most liquid markets in the financial world, and that coupled with no realistic investment alternative suggests demand will continue to remain high.
"America still represents the most politically stable country in which to invest capital, but there are investors who are wondering if we are moving toward "Japanese style" stagnation, as our yields are rivaling bond rates seen in other countries with prolonged sluggish economic growth," he said.