March 9, 2020 / 10:17 AM / 22 days ago

U.S. Treasury yields tumble to record lows on virus, oil fears

NEW YORK (Reuters) - U.S. Treasury yields tumbled to record lows on Monday as worries over the spreading coronavirus and oil price declines sparked a massive selloff in equities.

FILE PHOTO: United States one dollar bills are curled and inspected during production at the Bureau of Engraving and Printing in Washington November 14, 2014. REUTERS/Gary Cameron

The benchmark 10-year Treasury yield US10YT=RR dropped to a record 0.318% before climbing back to 0.515%, down 19 basis points on the day.

As global share markets tumbled, investors fled headlong to bonds to hedge the economic trauma of the coronavirus, and oil plunged more than 30% after Saudi Arabia opened the taps in a price war with Russia.

“There’s an obvious panic-buying spree in place and, as with every panic buying spree, there is no way to guess where it stops,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.

Trading in U.S. equities was temporarily halted after the benchmark S&P 500 .SPX fell 7%, triggering an automatic 15-minute stoppage.

Treasury yields came off their lows in the U.S. trading session, though analysts and investors are wary to call an end to the bond rally as the number of coronavirus cases continues to increase.

Market moves are also being exacerbated by trading conditions.

“Liquidity is still very thin, so I wouldn’t read into market moves here just because there is not a lot of volume behind some of these moves,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities in New York.

Thirty-year Treasury yields fell to a record low of 0.70% US30YT=RR, before rising back to 0.892%.

Two-year note yields tumbled to 0.251% US2YT=RR, their lowest since October 2014, before recovering to 0.397%. They have fallen for 13 straight sessions.

The closely watched yield curve between three-month bills US3MT=RR and 10-year notes briefly inverted again on Monday, a bearish signal for the U.S. economy.

That part of the yield curve inverted last March for the first time since the financial crisis, signaling the potential for a recession in a year or two.

The two-year, 10-year yield curve US2US10=TWEB, which is also closely watched as a recession indicator, flattened as far as 2 basis points, before steepening back to 13 basis points. That part of the yield curve was briefly inverted in late August and early September.

Meanwhile, the Federal Reserve Bank of New York on Monday increased the size of its repurchase agreements or repo operations and had the largest demand for overnight loans since it began daily injections into the banking system last fall.

Interest rate futures traders are now fully pricing in an additional 75 basis point rate cut at this month’s Federal Reserve meeting and a 55% probability that the Fed will cut rates back to the 0% to 0.25% band, according to the CME Group’s FedWatch Tool.

Reporting by Karen Brettell in New York, Karen Pierog in Chicago and Dhara Ranasinghe in London; Editing by Jonathan Oatis and Nick Zieminski

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