US Treasury rally resumes, yields hit new 5-month lows

LONDON: US 10-year Treasury yields slipped to a new five-month low on Tuesday, extending a 10 basis-point drop from the previous session, the biggest since February.

The market reversed its earlier moves that had seen yields rise to nearly 1.22% and 10-year borrowing costs fell as low as 1.164%, the lowest since mid-February.

The moves on Monday came as a rise in COVID-19 infections globally sparked fright about the economic outlook and sent investors scurrying for the safety of US and German bonds. That's despite relatively robust economic data and corporate earnings.

"Equity markets were pricing an explosion of growth and margins over the next two to three years and it's clear now we won't have that," said Ludovic Colin, senior portfolio manager at Vontobel Asset Management.

US Treasury yields continue fall as economic worries persist

Colin said however bond markets appeared too pessimistic in starting to price recession.

"We don't think we will have recession, just long-term growth that wont be as beautiful as what was expected by investors in January-March period."

The downward move has been led by the longer end of the market, flattening the yield curve significantly. Reflecting the growth concerns, the gap between two-year and 10-year yields remains below 100 basis points, having been at 122 bps at the start of July.

Thirty-year yields which had risen almost four bps earlier in the day, slipped back to 1.80%, though stayed off end-January lows touched on Monday.

The reversal on Treasuries boosted euro zone bonds too, with 10-year German yields extending their fall. They were last down 3 bps at minus 0.42%

Inflation-adjusted 10-year yields inched to minus 1.10%, not far off the record lows around minus 1.113% last touched in January.