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Hunger for Safe Assets Pulls Treasury Yields to New Lows

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03/05/2020 | 04:52pm EDT

By Joe Wallace

Treasury yields fell to new lows 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 the benchmark 10-year U.S. Treasury note settled at 0.924%, according to Tradeweb, establishing a new closing low after it settled at 0.994% Wednesday. Earlier in Thursday's session, the yield also reached a new intraday record low of 0.901%.

Yields, which fall when bond prices rise, dropped 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 an ICE Bank of America index tracking Treasurys is 6.1%, compared with a loss of 2.8% for the S&P 500 benchmark for U.S. stocks.

--Sam Goldfarb contributed to this article.

Write to Joe Wallace at Joe.Wallace@wsj.com

 

Stocks mentioned in the article
ChangeLast1st jan.
BANK OF AMERICA CORPORATION -1.05% 22.66 Delayed Quote.-35.66%
DJ INDUSTRIAL -0.04% 24465.16 Delayed Quote.-14.27%
NASDAQ 100 0.38% 9413.988451 Delayed Quote.7.80%
NASDAQ COMP. 0.43% 9324.587279 Delayed Quote.3.92%
S&P 500 0.24% 2955.45 Delayed Quote.-8.52%
WORLD CO., LTD. 4.97% 1393 End-of-day quote.-48.23%
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