Bond Report: 10-year Treasury yield carves out fresh low around 1.03% as investors hope for global central-bank action

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Treasury yields slumped in choppy trading on Monday amid expectations for major central banks to prop up financial conditions in response to the COVID-19 outbreak, following the worst week for U.S. equities since the 2008 financial crisis.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -6.01% fell 6.7 basis points to 1.059%, trading in a range between 1.03% to 1.15% in overnight trading. while the 2-year note rate TMUBMUSD02Y, -13.25%, sensitive to expectations for Fed policy, declined 14.3 basis points to 0.735%. The 30-year bond yield TMUBMUSD30Y, -2.38% slipped 3.7 basis points to 1.631%. Bond prices move in the opposite direction of yields.

What’s driving Treasurys?

Volatile trading in stock-market futures sparked similar moves in bond yields, as the 10-year benchmark nearly breached a level below 1% in overnight trading. Investors say even that key level is unlikely to hold if a renewed selloff in equities sends investors diving into safe-haven assets.

Disappointing Chinese economic data over the weekend highlighted the potential for supply-chain disruptions among global manufacturers, as workers trickle back onto factory floors and businesses look to resume operations. The Chinese official purchasing managers’ manufacturing index and the equivalent Caixin PMI index both reported their lowest reading since the 2008 financial crisis.

In U.S. economic data, the Institute for Supply Management’s manufacturing index will be released at 10 a.m. for February, which could provide indications of how domestic factories are faring under the uncertainty of the coronavirus.

In the face of growing worries, the world’s major central banks have started to pay close attention to the COVID-19 economic impact, with the Bank of Japan the first to take measures.

Bank of Japan Gov. Haruhiko Kuroda said the central bank would take steps to steady markets, and bolster liquidity through short-term lending operations and asset purchases. This comes after Fed Chairman Jer

Jerome Powell issued a statement on Friday saying the U.S. central bank would act as appropriate against the risks posed by the coronavirus.

Investors are now pricing in close to a 50 basis points worth of cuts at the March 17-18’ meeting by the rate-setting Federal Open Market Committee.

What did market participants’ say?

“If equities resume their fall and the Fed does not cut before the FOMC on 18 March, then there will be a greater probability of a 50bp cut in two weeks. The question what lower interest rates would exactly achieve in containing the coronavirus beyond providing liquidity is of course valid. But not doing anything would threaten to make the situation worse, cause financial conditions to tighten and hobble the global economy,” wrote Kenneth Broux, a strategist at Société Générale.


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