U.S. Treasury yields fell to record lows on Tuesday after the Federal Reserve carried out a 50 basis point emergency interest rate cut two weeks before its March meeting, amid worries that the COVID-19 outbreak could slow the U.S. and global economy.
What are Treasurys doing?
The 10-year Treasury note yield
TMUBMUSD10Y, -1.47%
slumped 8 basis points to 1.005%, after falling to an intraday record low of 0.914%, while the 2-year note rate
TMUBMUSD02Y, -3.47%
, sensitive to expectations for Fed policy, was down 10.1 basis points to 0.723%, its lowest since August 2016.
The 30-year bond yield
TMUBMUSD30Y, -0.41%
edged 2.2 basis points lower to 1.622%, deepening its foray into record lows. Bond prices move in the opposite direction of yields.
See: The 10-year Treasury note yield just broke below 1%. Here’s how it happened
What’s driving Treasurys?
The Fed lowered its benchmark interest rate by half a percentage point to a range between 1.00% to 1.25%, citing the evolving economic risks posed by COVID-19 epidemic globally. This is the first cut between scheduled policy meetings since October 2008, and surprised investors who were waiting for action at the March meeting in two weeks’ time.
The cut could help boost confidence among consumers and investors, and prop up financial conditions after a sharp swoon in risk asset prices last week. At the same time, analysts have cautioned that easier monetary policy may be unable to shoulder the task of supporting economic growth in the face of supply chain disruptions caused by the coronavirus epidemic.
Fed Chairman Jerome Powell said the Fed does believe “that our action will provide a meaningful boost to the economy.”
Despite the Fed’s action, U.S. stocks traded sharply lower on Tuesday, spurring inflows into haven assets. The S&P 500
SPX, -2.81%
and the Dow Jones Industrial Average
DJIA, -2.94%
were on track for a more than 2% loss on Tuesday.
Read: Why stocks are tumbling despite the Fed’s surprise interest rate cut
Finance ministers and central bankers from the Group of Seven world’s largest advanced economies said they stood ready to act to address the coronavirus, suggesting a willingness to use fiscal and monetary policy measures, but investors complained that the statement did not offer concrete details on what such policies might look like.
U.S. politics may also draw attention from traders during so-called Super Tuesday, when 14 states will hold their Democratic presidential primary elections.
What did market participants’ say?
“It feels quite an aggressive move on first take, given that the last inter-meeting rate cut was around when Lehman Brothers went bankrupt. But [the financial crisis] was a huge event,” Eoin Walsh, a portfolio manager at TwentyFour Asset Management, told MarketWatch.
“I would rather see more stuff on the fiscal side such as small business loans to help companies weather the storm, as opposed to interest-rate cuts. That’s more of a concern, will companies be able to stay afloat,” said Eric Souza, senior portfolio manager at SVB Asset Management, in an interview.
Source : MTV
