Bond Report: 10-year Treasury yield hits record low of 0.90% as virus worries spark renewed haven buying

Bond Report: 10-year Treasury yield hits record low of 0.90% as virus worries spark renewed haven buying

5 Mar    Finance News

U.S. Treasury yields tumbled on Thursday as a volatile stock market helped draw investors to government paper, amid worries about the COVID-19 outbreak’s potential to upend American consumer activity and supply chains.

What are Treasurys doing?

The 10-year Treasury note yield BX:TMUBMUSD10Y slumped 7 basis points to 0.924%, after setting an intraday record low of 0.902%. The benchmark maturity booked its eleventh straight session of declines.

The 2-year note rate BX:TMUBMUSD02Y was down 5.4 basis points to 0.585%, its lowest since July 2016. The 30-year bond yield BX:TMUBMUSD30Y slipped 6.6 basis points to 1.570%, a record closing low. Bond prices move in the opposite direction of yields.

See: Bond guru Gundlach says ‘better to stay in cash’ than Treasurys as U.S. 10-year yield hits record low

What’s driving Treasurys?

Fresh worries that the coronavirus would start to weigh on the U.S. economy pushed the 10-year Treasury yield further below 1%. So far, the U.S. impact has yet to significantly materialize in hard data, but analysts say it is inevitable that economic growth will take a hit in the first quarter.

Investors also have been paying attention to global travel restrictions, put in place to contain the virus. United Airlines and JetBlue Airways started to scale back their U.S. flight schedules on Wednesday as demand for travel shrinks among passengers. Conferences across the globe have been cancelled, and companies are asking employees to work from home.

COVID-19 case tally: 95,748 cases, 3,286 deaths

The S&P 500 US:SPX and the Dow Jones Industrial Average US:DJIA finished more than 3% lower on Thursday, as ongoing volatility has roiled U.S. equities over the past two weeks.

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In economic data, weekly jobless claims fell by 3,000 to 219,000. And fourth-quarter productivity growth rose at a 1.2% annual clip, while unit labor costs rose at an 0.9% pace.

New York Fed President John Williams will speak later this evening in New York, potentially offering clues on whether the U.S. central bank will lower interest rates again in two weeks at its scheduled policy meeting.

Traders have been adding to bets that the Fed will carry out an additional rate cut on top of the 50 basis point surprise cut on Tuesday. Jeffrey Gundlach, founder of DoubleLine Capital, said the Fed could lower rates at its upcoming meeting.

Read: Fed expected to continue cutting interest rates, beginning as soon as later this month

What did market participants’ say?

“You can tell what investors are thinking from the shape of the yield curve. Based on that, U.S. investors are expecting quite an aggressive response from the Fed,” said Michael Lorizio, senior fixed-income trader at Manulife Investment Management, in an interview.

The spread between the 5-year note and the 30-year bond, a common way to bet on the slope of the yield curve, stood at around 87 basis points on Thursday. That’s near the widest level since mid-2017.

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