U.S. Treasury yields fell Monday morning as a breakdown in talks between major oil exporters sparked a sharp decline in oil prices, sending stocks and inflation expectations lower.
The rising number of COVID-19 cases in the U.S. also threatened to hamper consumer demand, the linchpin of the U.S. economy.
What are Treasurys doing?
The 10-year Treasury note yield
TMUBMUSD10Y,
fell 29.2 basis points to 0.415%, hitting an intraday record low of 0.339% in overnight trading, while the 2-year note rate
TMUBMUSD02Y,
was down 20.2 basis points to 0.275%.
The 30-year bond yield
TMUBMUSD30Y,
slipped 37.9 basis points to 0.836%, a record. Bond prices move in the opposite direction of yields. All three maturities are trading below 1% for the first time in history.
What’s driving Treasurys?
Talks between Russia and the Organization of the Petroleum Exporting Countries failed to result in an agreement on crude production cuts. In response, Saudi Arabia slashed crude prices and was looking to ramp up production, a move that would cut into Russia’s market share.
The disagreement between the major oil exporters sparked the biggest one-day slump in crude oil prices since the Gulf War, and sent global equity markets lower. Safe-haven assets like Treasurys saw sharp bidding, with the longer-term maturities seeing the sharpest rally as energy prices are closely tied to inflation expectations.
Futures for the S&P 500
SPX,
and the Dow Jones Industrial Average
DJIA,
plunged 5%, triggering circuit-breakers.
The 10-year break-even rate, expectations for consumer prices as indicated by trading for Treasury inflation-protected securities, fell to its lowest level since the middle of 2009.
Worries around the coronavirus also kept investors on edge, as the growing number of confirmed cases in Western Europe along with the U.S. threatened to slow growth. Italian Prime Minister Giuseppe Conte signed a decree limiting community interaction for nearly five weeks in parts of Northern Italy.
COVID-19 case tally: 111,284 cases, 3,892 deaths
Traders on the fed-fund futures markets are now expecting a one-in-two chance of the U.S. central bank cutting interest rates all the way to zero by December.
As Treasurys rally, a rush of government bond supply this weekend across the 3-year, 10-year, and 30-year maturities. The decline in yields could serve as a test of demand, as haven appetite appears to overwhelm the need for income from government paper.
What did market participants’ say?
“[Today] is going to be a defining day in the markets as the selling pressure in equities does not appear to be letting up in anyway. Crude oil selling pressure is also having its negative effect on equities and credit as well,” said Tom di Galoma, managing director of U.S. Treasurys trading, in emailed comments.
Source : MTV
