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Treasury yields rose in line with stocks on Monday as investors eyed the prospect of re-openings across Europe, with the tally of deaths due to COVID-19 starting to decline in those countries.
What are Treasurys doing?
The 10-year Treasury note yield BX:TMUBMUSD10Y climbed 6.1 basis points to 0.655%, marking its biggest one-day rise in three weeks while the 2-year note rate BX:TMUBMUSD02Y was up a single basis point to 0.224%. The 30-year bond yield BX:TMUBMUSD30Y surged 7.4 basis points to 1.249%, booking its biggest one-day climb since March 18. Bond prices move in the opposite direction of yields.
What’s driving Treasurys?
Italy, Germany and Spain announced measures to ease lockdowns implemented to combat the spread of the coronavirus. Against the risk of a potential resurgence in infections, investors say their experiences with reopening their economies will be closely monitored.
Treasury Secretary Steven Mnuchin said on Sunday the U.S. economy would reopen in May and June and then “really bounce back.”
Hopes that economic activity can recover, helped to bolster equities at the expense of bonds. The Europe Stoxx 600 index XX:SXXP gained 1.6%, while the Dow US:DJIA and S&P 500 US:SPX both finished up 1.5%.
The Treasury market selloff helped to cheapen prices for government paper, bolstering appetite for auctions of shorter-term debt on Monday. Around $85 billion of 2-year and 5-year notes BX:TMUBMUSD05Y were sold.
Bond traders saw significant overseas developments. The Bank of Japan pledged to buy an unlimited amount of bonds to support the economy on Monday, putting it in line with other central banks like the Federal Reserve who have made similar moves. The central bank also said it would triple its quota of corporate bond and very short-term commercial paper purchases.
And in Europe, Italian government bond markets rallied after S&P Global Ratings left the country’s credit rating unchanged late Friday, easing the concerns of investors who worried that the third-largest economy in the eurozone would fall below investment-grade, or “junk.“
The 10-year Italian government bond yield BX:TMBMKIT-10Y slid 14 basis points to 1.767%.
What did market participants’ say?
“While wary of persistently raining on everybody’s parade, we remain concerned that an easing of restrictions is likely to prompt a resurgence of infection rates and a subsequent re-tightening of controls,” said analysts at Rabobank, in a note.
“A lot of that initial move up in stocks until last week was a result of the Fed stepping in and taking away the downside tail risk,” said Frank Rybinski, senior investment strategist at Aegon Asset Management, in an interview.
