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Treasury yields traded sharply lower on Monday as investors dove into government paper following the Federal Reserve’s emergency announcement Sunday that it would ramp up its bond-buying purchases and cut rates to rock-bottom.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, -25.12% fell 22.4 basis points to 0.722%, its biggest one-day drop since March 2009, while the 2-year note rate TMUBMUSD02Y, -25.37% was down 12.4 basis points to 0.360%. The 30-year bond yield TMUBMUSD30Y, -13.08% dropped 22.2 basis points to 1.319%. Bond prices move inversely to yields.
What’s driving Treasurys?
Amid weakness in global stocks, U.S. stocks tumbled at the start of the week, with the S&P SPX, -11.99% hitting a circuit breaker at the start of the session. This helped to spur inflows into government bonds, traditionally considered a safe-haven asset.
See: Stock-market futures sink after emergency Fed rate cut — ‘if this doesn’t work, what will?’
On Sunday, the Fed announced a series of measures aimed at restoring the functioning of the Treasurys market, which has suffered from a lack of liquidity in the past few weeks. It also said it would attempt to support the flow of credit and ensure overseas financial institutions had enough access to dollar funding.
The U.S. central bank cut rates by a full percentage point to a range between 0% and 0.25% in a bid to support the economy as businesses grapple with the economic blow from the COVID-19 outbreak.
The Fed also said it would buy at least $500 billion of Treasurys and $200 billion of mortgage-backed securities over the coming months, starting from Monday. It said it would roll over all principal payments from the Fed’s holdings of government bonds and agency mortgage-backed securities.
The Fed’s measures helped to drive borrowing costs for the government lower on Monday.
Still, investors say more aggressive fiscal measures will be necessary to limit the fallout from the coronavirus. Senate Democrats proposed an aid package, seeking out at least $750 billion of funds for unemployment insurance, to boost hospital capacity and to assist households and businesses.
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In economic data, the Empire State business conditions index for March plunged a record 34.4 points to -21.5 in March.
Investors will also view the January Treasury International Capital report at the end of the day. The widely watched data offers insights on demand for U.S. government bonds and other assets among overseas investors.
What did market participants’ say?
“The Fed is doing all that it can, and another inter-meeting cut is evidence that they are ‘on the job,’” wrote Jason Brady, president and CEO of Thornburg Investment Management.
“The additional bond buying is reasonable and has precedent, but mostly this underlines the lack of power the Fed has in the short term,” said Brady.
“There must be some kind of fiscal backstop. You really need to see more help from the government,” said David Norris, head of U.S. credit at TwentyFour Asset Management, in an interview.
Opinion: A feckless Fed, huge deficits and poisonous politics bring us to a crisis
