US Treasury yields fell on Monday morning, a breakdown in talks between major oil exporters triggered a sharp drop in oil prices, leading to lower inventories and lower inflation expectations.
The growing number of COVID-19 cases in the United States has also threatened to hamper consumer demand, the backbone of the US economy.
What are Treasurys doing?
The yield on 10-year treasury bills
TMUBMUSD10Y,
fell 29.2 basis points to 0.415%, reaching an intraday record low of 0.339% in night trading, while the 2-year rate
TMUBMUSD02Y,
is down 20.2 basis points to 0.275%.
The bond yield at 30 years
TMUBMUSD30Y,
slipped 37.9 basis points to 0.836%, a record. Bond prices move in the opposite direction of returns. The three maturities are trading below 1% for the first time in history.
What motivates Treasurys?
Talks between Russia and the Organization of the Petroleum Exporting Countries have not resulted in an agreement on reductions in crude oil production. In response, Saudi Arabia cut crude prices and sought to increase production, which would reduce Russia’s market share.
See: Oil plunges 25% and investors prepare for race to the bottom as OPEC “price war” breaks out between Saudi Arabia and Russia
The disagreement between the major oil exporters triggered the biggest drop in crude oil prices since the Gulf War, and knocked global stock markets down. Safe haven assets like Treasurys have had strong auctions, with longer-term maturities having experienced the strongest recovery, with energy prices closely linked to inflation expectations.
Futures for the S&P 500
SPX,
and the Dow Jones Industrial Average
DJIA,
plunged 5%, tripping circuit breakers.
The 10-year break-even point, anticipation of consumer prices as indicated by the exchange of inflation-protected Treasury securities, fell to its lowest level since mid-2009.
Concerns over the coronavirus have also kept investors on the alert, as the growing number of confirmed cases in Western Europe and the United States threatens to slow growth. Italian Prime Minister Giuseppe Conte signed a decree limiting community interaction for almost five weeks in parts of northern Italy.
COVID-19 Case Count: 111,284 cases, 3,892 deaths
Traders in the federal fund futures markets now expect half the chance that the US central bank will cut interest rates to zero by December.
As the Treasurys rally, a rush for the supply of government bonds this weekend on the maturities of 3 years, 10 years and 30 years. The drop in yields could serve as a test of demand, since the appetite for havens seems to exceed the need for income from government paper.
What did market players say?
“[Today] is going to be a decisive day on the markets because the selling pressure on stocks does not seem to ease in any case. The pressure from crude oil sales is also having a negative effect on stocks and credit, “said Tom di Galoma, managing director of US treasury trading, in email comments.
