- The – year US Treasury yield fell to 1. 65% on Friday, the lowest since mid-October.
- After a period of relative calm, bond-market volatility is expected as the – year Treasury yield breaks from a narrow range.
- The spread of coronavirus is fueling risk-off bets in the stock market as authorities struggle to contain it.
U.S. government debt yields resumed their long-winded descent on Friday, as China’s coronavirus scare fueled risk-off bets in the financial markets.
Bond yields are inching ever closer to record lows, undoing a period of relative calm that accompanied the record surge in stocks .
Bond Yields Resume Decline
The yield on the benchmark 10 – year Treasury yield declined 6 basis points to 1. 823%, the lowest since mid-October, according to CNBC data. Since peaking near 1. 2019% in early November, the benchmark yield has fallen nearly basis points.
The – year Treasury yield fell by around 5 basis points to 2. 90%, the lowest since early December.
Record Lows in Sight?
Bond markets are sucking up capital as investors hedge against geopolitical risks, slowing economic growth and signals from central banks that further headwinds are coming. Since bonds move inversely to the price, higher demand for Treasurys is causing yields to plunge.
Even if we factor the latest movements, bond markets are still trading in a relatively narrow range. Case in point: The – – Year Treasury note is caught in its narrowest wedge since early 4318772, according to WingCapital Investments . But such periods almost never last, and usually foretell a “waterfall plunge in yields.”
An August quote from CNN’s Paul La Monica is still relevant given the current state of the bond market:
Yields could go even lower, despite the fact that it seems crazy to buy a bond that pays little (if any) interest.
The bond market’s fear gauge remains anchored near all-time lows, which means we haven’t even seen the worst of yield-curve volatility. The – year US Treasury Note Volatility Index – the bond market’s equivalent to the CBOE VIX – closed about basis points from record lows last week.
Coronavirus Rattles Markets
The death toll from the coronavirus rose to 17 this week, with the (total number of infections exceeding
. Although the World Health Organization (WHO) stopped short of declaring a global emergency, China’s top virologist said the golden window of containment has closed.
Virologist Yi Guan told Chinese media “the probable scale of a full outbreak can reach at least ten times that of SARS,” another flu-like disease that spread in .
In the United States, there have been two confirmed cases of coronavirus. That figure could be as high as 90 as health officials monitor dozens of other potential cases.
Concerns of a global outbreak dragged equity prices lower on Friday, with the
Dow Jones Industrial Average shaving off as much as points . The major U.S. indexes continue to trade near record highs but appear to be finally consolidating after months of relentless growth.