By Sunny Oh
U.S. Treasury yields mostly saw modest gains Tuesday, amid continued uncertainty around the depth and duration of the COVID-19 pandemic. Efforts to mitigate the spread of the disease have provided investors fleeting periods of optimism, but economic data in the U.S. suggests that it may be a long road for the U.S. economy, even if China, where the illness originated, is seeing signs of life after its monthslong coronavirus shutdown.
Against that backdrop, quarterly and monthly rate moves for U.S. paper have been lower as investors have fled to safe-haven assets amid a global stock-market rout inspired by the deadly infection.
How did Treasurys perform?
The 10-year Treasury note yield (XTUP:BX:TMUBMUSD10Y) rose 2.4 basis points to 0.691% on Tuesday, while the 30-year bond yield (XTUP:BX:TMUBMUSD30Y) climbed gained 6.9 basis points to 1.346%.
For the quarter, the 10-year note lost 1.218 percentage points, representing its steepest yield slide since September 2011, while the 30-year bond gave up 1.032 percentage points in the first three months of 2020 to also mark its sharpest skid since 2011. In March, the 10-year retreated 43.6 basis points, for its biggest monthly yield decline since August 2019, according to Dow Jones Market Data. The 30-year is down 31.2 basis points in March.
Meanwhile, the two-year note yield (XTUP:BX:TMUBMUSD02Y) was virtually unchanged, declining 0.4 basis points, at 0.232%.
It was the two-year’s biggest quarterly slide, off 1.337 percentage points in the first three months of the year, since March 2008. The short-dated bond lost 65.6 basis points in March, representing its sharpest monthly fall since March 2008.
Bond prices move inversely to yields.
What drove Treasurys?
Investors are clinging to hope amid a pandemic that has wreaked havoc on stocks and bolstered buying in government debt. Early in Tuesday’s session, markets were optimistic about signs of stabilization of coronavirus cases in the U.S. and Western Europe. Italy reported the smallest increase in confirmed illnesses in two weeks on Monday, stirring hopes that the heavy social curbs put in place were finally bearing fruit.
However, many are bracing for a more significant outbreak in the weeks and months ahead, with confirmed cases in the U.S. at more than 184,000 infections, according to data compiled by Johns Hopkins University . The death toll, now greater than that of China, stands at 3,606. That is still far less than Italy, where fatalities rose to 12,428 Tuesday, or Spain, which has reported 8,269 deaths, the Wall Street Journal noted.
Chinese economic activity showed signs of improvement as the second-largest economy attempts to return to normalcy after being locked down for several weeks. The manufacturing gauge for the March official purchasing managers survey rose to 52, from a record low of 35.7 in the previous month.
China’s official statistics agency cautioned that the rebound didn’t indicate that economic activity had returned to pre-outbreak levels, but rather showed manufacturers were reporting better conditions compared with February.
Meanwhile, on Tuesday morning the Federal Reserve said it was establishing a temporary repo facility for foreign central banks that would help make U.S. dollars available in their jurisdictions. In the new facility, the central banks will be able to temporarily exchange their U.S. Treasurys held at the Fed for U.S. dollars.
In economic reports, the S&P Case-Shiller 20-city home price index was up 3.1% in January from a year ago.
What did market participants say?
“Markets breathed a small sigh of relief this morning after China reported surprisingly strong increases in the manufacturing PMI from 35.7 to 52.0 and nonmanufacturing PMI rose from 29.6 to 52.3, but the numbers come with a warning from the stats bureau: do not get carried away, the economy isn’t back to normal,” said Kenneth Broux, a strategist at Société Générale, in a note.