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Markets

Longer-term yields fall on growing worries of pandemic's economic impact

The benchmark 10-year yield was down 11.3 basis points in morning trading at 0.5863pc. Earlier Wednesday, the
01 Apr 2020
  • The benchmark 10-year yield was down 11.3 basis points in morning trading at 0.5863pc.
  • Earlier Wednesday, the New York Fed said it received no bids for its overnight repurchase agreement (repo) operation.

BOSTON: Longer-term US Treasury yields fell on Wednesday as investors grew more cautious about the economic impact of the coronavirus and braced for further equity market declines.

The benchmark 10-year yield was down 11.3 basis points in morning trading at 0.5863pc.

Shorter-term yields were little changed, leaving flatter a closely-watched portion of the US Treasury yield curve measuring the difference between yields on two- and 10-year Treasury notes. It was at 35 basis points, down 6.7 basis points from Tuesday's close.

Tom di Galoma, managing director of Seaport Global Holdings, said traders were reacting to warnings that the worst of the pandemic's US impact still lies ahead. Economically that would mean lower US equity prices and higher unemployment numbers, with a lasting impact on growth prospects.

"There's a lot of tension in the marketplace about how bad the jobless claims will be next month," he said.

On Tuesday, US President Donald Trump warned Americans of a tough two weeks ahead, with White House health officials modeling an enormous jump in virus-related deaths even with strict social distancing measures. US stock indexes tumbled at the open on Wednesday, as investors fled to safe-haven assets.

The ADP National Employment Report on Wednesday showed private payrolls fell by 27,000 jobs last month, the first decline since September 2017, after advancing by an unrevised 183,000 in February.

Di Galoma said a bright spot is that Federal Reserve efforts to smooth market functions seemed to be working with lower volatility and better liquidity. "It doesn't look like the system is being stressed, even though it's a very stressful situation," he said.

Earlier Wednesday, the New York Fed said it received no bids for its overnight repurchase agreement (repo) operation.

The announcement marked the latest day since Friday that few or no bids were submitted for such operations, suggesting liquidity has improved in the market for short-term government securities.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 1.3 basis points at 0.2414pc in morning trading.