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U.S. Treasury yields fell sharply Thursday as investors said asset purchases from the Federal Reserve and other global central banks helped to stabilize government bond markets that have been rocked by heavy selling in the last few days.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, +0.13% slumped 13.8 basis points to 1.121%. The 2-year note yield TMUBMUSD02Y, -9.66% fell 10.5 basis points to 0.417%. The 30-year bond yield TMUBMUSD30Y, +1.95% slipped 14.3 basis points to 1.745%.
What’s driving Treasurys?
Investors say asset-purchasing programs by the global central banks may finally be making their way into the bond-market and pushing yields lower. In the last few sessions, values for government paper have come under pressure as investors tried to raise cash have sold their most liquid holding — U.S. Treasurys.
The Federal Reserve bought close to $75 billion of Treasurys alone on Thursday. Government bond holders in some eurozone economies like Italy received a lift last night after the European Central Bank announced a new €750 billion ($811 billion) asset-purchasing program.
Market participants also remain focused on the potential economic impact expected from the spread of the coronavirus, along with details of a U.S. fiscal stimulus package that is anticipated to run to $1 trillion or more.
The U.S. Treasury is considering the sale of 25- and 50-year bonds to help finance the fiscal stimulus package aimed at cushioning the economic blow from the pandemic, according to a Bloomberg News report citing sources familiar to the matter.
The report briefly sent long-term yields higher, until data showing a sharp surge in U.S. jobless claims in the most recent week pulled yields lower again. Some investors and analysts have called for the Treasury to issue longer-term debt to take advantage of the current ultra-low interest rate regime.
Initial jobless claims climbed by 70,000 to a seasonally adjusted 281,000 in the seven days ended March 14, the government said Thursday. That’s the highest level since September 2017.
See: U.S. jobless claims surge 70,000 to 281,000 in mid-March as coronavirus triggers layoffs
The Philadelphia Fed manufacturing index in March plunged to a reading of negative 12.7, close to an 8-year low, after recording a positive 36.7 in the prior month.
What did market participants’ say?
“The Fed is very much committed to the old Mario Draghi approach of do whatever it takes. At this stage of the game, they’re trying to reestablish confidence and order in the markets at the most basic level,” said Kathy Jones, chief fixed-income strategist at Schwab Center for Financial Research.
She said the U.S. central bank’s bond purchases and its other emergency lending programs have helped stanch the selling that has taken place in Treasurys market, as highly leveraged investors unwind their government bond positions.
See also: Fed sets new loan program designed to ease turmoil in money markets
