U.S. Treasury yields fell sharply on Friday as the Federal Reserve’s asset purchases showed signs that it had began to stabilize trading in the more than $18 trillion U.S. government bond market after huge volatility and problems with liquidity in the past week as financial markets coped with the economic impact of the coronavirus pandemic.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, -26.22% fell 18.9 basis points to 0.932%, leaving it 1.4 basis point lower for the week, while the 2-year note rate TMUBMUSD02Y, -28.85% was down 5.5 basis points to 0.362%, contributing to a 12.2 basis point week long decline. The 30-year bond yield TMUBMUSD30Y, -20.37% slipped 20.3 basis points to 1.542%, and virtually uncahgned for the week.
What’s driving Treasurys ?
Investors suggest the Federal Reserve’s bond-buying program may finally have started to push prices for government paper higher and yields lower, helping to erase the counter-intuitive trading in past sessions that saw both stocks and bond sell off in sync.
The U.S. central bank announced at least $500 billion of asset purchases last Sunday night as part of its efforts to tamp down on the dislocations between the most liquid and least liquid Treasurys in part because dealers have been reluctant to serve as an intermediary in a volatile market.
Jefferies estimates that the Fed had expanded its balance sheet by $350 billion in the week ending on March 18.
Earlier this week, market participants had puzzled over how government bonds did not act as a safe haven in recent sessions as money managers, companies and retail investors sold Treasurys to raise funds to cover their losses. This went against the widely held belief among portfolio managers that investor should hold bonds as insurance for the broader portfolio if risk assets like equities come under stress.
In U.S. economic data, existing home sales for February surged 6.5% to a seasonally adjusted rate of 5.77 million. Analysts polled by MarketWatch had forecast a reading of 5.51 million.
What did market participants’ say?
“You’ve got Treasury prices at their highs for the 10-year sector. I think that’s really encouraging,” Tom Graff, head of fixed income at Brown Advisory, told MarketWatch. “If people aren’t selling everything, that’s a good sign.”
“The Treasury market is rallying today as global central banks appear to be “all-in” on support and accommodation for their countries either through rate cuts, buying programs, or lending operations,” said Kevin Giddis, head of fixed income at Raymond James.