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April 6, 2020, 4:18 p.m. EDT

U.S. government bond yields bounce on coronavirus hopes as S&P 500 gains 7%

Auction for 3-year notes sees tepid appetite

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By Sunny Oh

Treasury yields rose sharply Monday as a global rally in risk assets drew demand away from government paper on hopes that the spread of the COVID-19 disease was beginning to slow in the U.S. and Europe.

Investors will see a holiday-shortened week in observance of the Good Friday holiday. The Securities Industry and Financial Markets Association recommends bond markets to end trading early at 2 p.m. Thursday, and to fully close on Friday.

What are Treasurys doing?

The 10-year Treasury note yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +2.07% rose 8.8 basis points to 0.675%. The two-year note yield /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y -1.53% was up 5.5 basis points to 0.266%. The 30-year bond yield /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y +1.51% climbed 6.9 basis points to 1.283%. Bond prices move in the opposite direction of yields.

What’s driving Treasurys?

Data indicating a slowdown of new coronavirus cases in Spain and Italy, along with signs that the number of deaths attributed to the illness was falling in New York City, helped to buoy global equity markets. The S&P 500 /zigman2/quotes/210599714/realtime SPX -0.16%   closed around 7% higher on Monday, while the STOXX Europe 600 index /zigman2/quotes/210599654/delayed XX:SXXP -1.19%   gained 3.7%

New York Gov. Andrew Cuomo said the rate of increase for the coronavirus was starting to slow down, and that the state may have hit the peak of its outbreak. He ordered an extension of the statewide shutdown through April 29.

The coronavirus has prompted municipalities and local governments to institute lockdowns across large sections of the U.S., with many economists now expecting a recession this year. Last week’s labor-market data showed companies were laying off workers en masse as consumer demand came to a halt.

In the week, the Treasury Department sold $40 billion of three-year notes to tepid appetite, adding to the bearish dynamic in the market.

Investors say the debt issuance may have weighed on values for government paper as broker-dealers bid yields higher to ensure a successful debt auction. Still, analysts say it is unclear how much new supply can push yields higher in the face of the Federal Reserve’s bond-buying operations.

What did market participants say?

“The start of this holiday-shortened week witnessed the return of an increasingly familiar correlation: stocks up, yields up, corona down,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, in a note.

“Treasury yields going up when risk assets in favor, that would be considered normal function. Those are good things,” said Kevin Giddis, chief fixed-income strategist at Raymond James, in an interview.

add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
+0.01 +2.07%
Volume: 0.00
April 8, 2020 5:27a
add Add to watchlist BX:TMUBMUSD02Y
BX : Tullett Prebon
-0.0041 -1.53%
Volume: 0.00
April 8, 2020 5:23a
add Add to watchlist BX:TMUBMUSD30Y
BX : Tullett Prebon
+0.02 +1.51%
Volume: 0.00
April 8, 2020 5:27a
-4.27 -0.16%
Volume: 4.22B
April 7, 2020 5:09p
-3.89 -1.19%
Volume: 0.00
April 8, 2020 11:13a

Sunny Oh is a MarketWatch fixed-income reporter based in New York.

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