The slippage in the benchmark yield of the US bond market is one for the history books.
10-year Treasury bill yields TMUBMUSD10Y,
fell as low as 0.520% in overnight trading early Friday, corresponding levels last on March 9 when the benchmark maturity rate to a historically low level after concerns over the COVID-19 pandemic pushed investors to rush to safe haven assets.
According to Deutsche Bank, this record low goes back further than most people might expect. They calculated that the current 10-year yield nadir was 234 years, based on combined data from the various times the U.S. government has borrowed money in the past.
“The United States has gone through depressions, deflations, wars, restrictive gold standard regimes, market crashes and many other major events and never before have we seen returns so low as when Founding Fathers shaped the country, ”said Jim Reid of Deutsche Bank. chief credit strategist, in a Friday memo.
The relentless drop in the 10-year rating reflects how the bond market bull run has defied experts’ predictions that interest rates and yields would eventually rise, as the economy progressed before the pandemic or on the potential inflation caused by the Federal Reserve’s money printing this year. .
But years of steady economic growth and low inflation have gradually lowered the Federal Reserve’s benchmark federal funds interest rate, leaving less room for the central bank to ease monetary policy further.
As the Fed’s key interest rate fell after the economic downturns in 2008 and 2020, the central bank was forced to adopt other unconventional monetary policy tools such as outright bond purchases and simply to support economic growth.
Extremely low bond yields indicate concern about the health of the U.S. economy as the number of coronavirus infections rises in many U.S. states.
In contrast, Wall Street actions shrugged off the economic devastation and placed their hopes in a spending free government and an accommodating central bank.
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Reid rated the SPX S&P 500 Index,
has moved more than 18% since March 9, while the yield compensation offered for below-HYG corporate bonds,
had also fallen by 150 basis points over the same period, reflecting the strong recovery in the prices of so-called risky assets.