By Joe Wallace
Treasury yields fell Thursday, pulled down by investors' appetite for safe assets and wagers that the Federal Reserve will take further action to counter the economic impact of the novel coronavirus.
The yield on 10-year Treasury notes dropped to 0.934%, from 0.992% on Wednesday, putting it on course to close below 1% for the second day in a row. Bond yields fall as prices rise.
Yields fell below 1% on 10-year Treasurys for the first time ever on Tuesday, a milestone for a market that helps set borrowing costs for the U.S. government as well as millions of consumers and businesses.
Thursday's decline came as U.S. stocks lurched lower, extending a spell of volatility driven by signs that the epidemic will disrupt supply chains and cash flow for companies world-wide. Investors have flocked to assets that are seen as reliable stores of value, such as U.S. government debt and gold, amid swings in the price of stocks and corporate bonds.
Investors world-wide are looking to buy U.S. government bonds as they seek to buy safe assets that pay a positive yield, said Richard McGuire, head of rates strategy at Rabobank. "Who wouldn't want to own a U.S. Treasury that offers a 1% return over 10 years if you have to pay 0.7% for the privilege of owning a bund?" he said, referring to German government bonds.
Many money managers expect the Fed to cut interest rates again as it seeks to shield the U.S. from a potential slowdown in global growth, and also to prevent volatility in financial markets from hurting the real economy. The central bank surprised the market by cutting its benchmark rate by half a percentage point this week.
In one sign that investors are awaiting additional rate cuts, the yield on two-year notes, which are sensitive to monetary policy set by the Fed, fell to 0.568% on Thursday, from 0.614% a day before.
Meanwhile 10-year yields are below the Fed's target range for short-term interest rates -- between 1% and 1.25% -- suggesting investors don't think the Fed's "aggressive policy response" will succeed in lifting economic growth and inflation, Mr. McGuire said. The central bank's next policy meeting is due to take place on March 17-18.
This year's drop in yields and rally in Treasury prices have delivered rich returns for investors in U.S. government bonds. The total return on 10-year Treasury notes in 2020 is 6.2%, according to FactSet, compared with a loss of 2.8% for the S&P 500 benchmark for U.S. stocks.
Write to Joe Wallace at Joe.Wallace@wsj.com