22-Sep (The Wall Street Journal) — Investors staged a flight from risk in global markets that sent U.S. stocks plummeting and 10-year Treasury yields to 1940s levels, after a gloomy outlook by the Federal Reserve renewed fears of a global economic slowdown.

U.S. stocks hit successive lows throughout Thursday’s session as investors sold off assets perceived as “risky” and fled to the dollar and to government bonds. The selloff started Wednesday. The Fed moved to increase the share of longer-dated Treasurys within its portfolio by $400 billion by June 2012, while selling shorter-term paper. But the planned effort, which investors dubbed “Operation Twist,” was overshadowed by a gloomy statement from the central bank noting “significant downside risks” to the global economy. The Fed also noted “strains” in global financial markets, widely interpreted as a reference to Europe’s sovereign-debt crisis.

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PG View: Investors may be fleeing stocks in favor of the dollar and bonds, but they are unlikely to stay there. Growth risks that tanked stocks are just the catalyst for additional central bank measures that would be dollar negative. And the yields on US Treasuries simply don’t accurately reflect the true risks.