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Treasury 10-Year Yield Tumbles to Record Low on Haven Demand

Wednesday 26th February 2020

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The 10-year U.S. Treasury yield fell to a record low on Tuesday as investors sought shelter amid concern that the global spread of the coronavirus is threatening supply chains critical to economic growth.

The benchmark rate for global borrowing fell as much as 5.8 basis points to 1.3121%, extending its year-to-date decline to 61 basis points. The 30-year yield, which set a fresh all-time low Friday, extended its decline to as low as 1.79%.

“The bond market is sniffing out that this is more than a contained virus and the impact on the global economy is probably going to be worse than people are anticipating,” said John Fath, managing partner at BTG Pactual Asset Management and a primary dealer trader from 1993 to 2008.

The previous record low for the 10-year, 1.318%, was reached in July 2016 in a rally led by U.K. gilts following the Brexit vote in June.

As stocks tumbled worldwide, other haven bond markets also have rallied. German and Dutch 30-year yields turned negative on Monday for the first time since October. The 2-year Treasury yield also slumped, dropping to a three-year low.

What this means as an active manager is “you have to collapse risk in your portfolio” and hug more tightly to your benchmark index, said Jim Caron, fixed income money manager at Morgan Stanley Investment Management.

Yields can keep sliding as investors pile into safe assets to offset their riskier holdings, according to Caron.

“There are very few high-quality hedges in the bond market -- other than the U.S. Treasury market -- that you can buy where yields actually have scope to fall,” he said.

Meanwhile, Wall Street is increasingly betting that the Federal Reserve may have to cut rates again as jitters over the virus roil financial markets.

With yields below the Fed’s policy rate, “it’s clear their hands are going to be forced by the market if things don’t improve,” said Fath.


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