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Treasury yields fell on Monday as investors tackled fears that the two world’s largest economies could face heightened tensions, adding to existing concerns around the global economy’s health in the wake of the COVID-19 pandemic.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, 0.641% edged 0.8 basis point to 0.627%, while the 2-year note rate TMUBMUSD02Y, 0.172% was down 1.6 basis points to 0.186%. The 30-year bond yield TMUBMUSD30Y, 1.291% fell 4.5 basis points to 1.233%. Bond prices moving in the opposite direction of yields.
What’s driving Treasurys?
Evidence of climbing tensions between the U.S. and China dampened investor sentiment, drawing investors into the perceived safety of government paper. In January, both sides had agreed on a phase one trade deal, appearing to reach a truce on their longstanding conflict, but many news reports say the Trump administration is now looking to punish Beijing for its handling of the coronavirus outbreak.
The White House was weighing the use of new tariffs, with President Donald Trump saying import levies would be the “ultimate punishment” for China. And the Trump administration is ramping up its initiatives to move supply chains out of the world’s second largest economy, Reuters reported.
Stock-market futures for the S&P 500 SPX, -0.40% and Dow Jones Industrial Average DJIA, -0.83% were pointing to a slump on Monday at the start of trade for Wall Street. Hong Kong’s Hang Seng Index HSI, -4.17% closed down 4.2% on Monday, while Chinese and Japanese exchanges were closed for the holidays.
Investors also grappled with worries that a return to normal economic activity may take longer than expected. Purchasing managers’ indexes in April from Asia and Europe fell further into contraction territory, reflecting a sharp decline in factory activity.
What did market participants’ say?
“It is against the backdrop of a superficial trade peace that hostilities returned last week with both countries trading barbs over the origins and handling of the coronavirus,” said Kenneth Broux, analyst at Société Générale, in a research note.
“The U.S. call for ‘compensation’ from Beijing nevertheless puts investors on edge and, at the start of a new month, adds a deeper shade of darkness to the investment waters already muddied by corporate earnings scepticism and macro pessimism,” he said.
