The 10-year Treasury yield fell to a record low as coronavirus fears raised concerns about global economic growth and sent investors scrambling into the safety of U.S. government bonds.
The yield on the benchmark 10-year Treasury note, which moves inversely to price, fell about more than 5 basis points to 1.32%, below its previous record low of 1.325% set on July 6, 2016 in the aftermath of Brexit.
The yield on the 30-year Treasury bond tumbled more than 3 basis points to a new all-time low of 1.798%. The long-duration rate has plunged about 40 basis points this year.
A sharp rise in cases of the new coronavirus in Italy, South Korea and the Middle East sparked fears of a global pandemic that will slow the world economy, sending investors running for cover.
Total confirmed cases globally have surged to more than 80,200 and at least 2,704 people have died of the coronavirus. Overnight, South Korea reported 60 new cases to bring the country’s total to 893 infected, while China’s National Health Commission reported 508 new confirmed cases and 71 new deaths.
Stocks were falling sharply along with the tumbling yields on Tuesday. The Dow Jones Industrial Average was down 250 points after suffering its worst day of losses in two years in the previous session.
“Price action in assets generally over the last two days suggest that finally the market is pricing in a growth impact from Coronavirus,” Priya Misra, head of global rates strategy at TD Securities, said in an email to CNBC. “If the virus continues to spread, risk assets can come under a lot of pressure and Treasury rates have room to decline more. I think the Fed will come into play with a significant shock to growth and risk assets.”
Fed rate cut?
Amid the escalated coronavirus fears, traders are now pricing in a more than 50% chance of an interest rate cut at the Federal Reserve’s April meeting, according to the CME. The market also assigns a 40% of three cuts before the end of 2020.
“The futures market is currently pricing in a Fed rate cut this summer as our Treasury market chases the global fixed income market to zero,” Andrew Thrasher, founder of Thrasher Analytics, said in a note Tuesday. “I’m not one who believes we’ll see negative rates in the U.S., but with global investors chasing after U.S. assets, specifically fixed income, there’s significant pressure on rates to stay low.”
Yields also retreated Tuesday after data showed consumer confidence rose less than expected in February as people’s assessment of current conditions wavered, fueling concerns about an economic slowdown.
With the conoravirus disrupting the global supply chain, Goldman Sachs slashed its U.S. GDP forecast for the first quarter to just 1.2%, drastically slower than the 2.1% increase in the fourth quarter and 2.3% for the full year 2019. The bank also cut its economic outlook for China.
Many investors have blamed global central banks’ persistent monetary easing measures for the falling yields. Global policy makers have been slashing interest rates at the fastest pace since the financial crisis, with more than 25 cuts since the start of 2019, according to Deutsche Bank. About $15 trillion of government bonds worldwide now trade at negative yields, the bank said.
— CNBC’s Thomas Franck and Elliott Smith contributed reporting.
