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Sept. 28, 2022, 4:46 p.m. EDT

U.S. bond market stages biggest one-day rally in years after Bank of England’s emergency action

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By Vivien Lou Chen and Jamie Chisholm

Treasurys rallied on Wednesday after the Bank of England took urgent steps to arrest disorderly market conditions in its own government-bond market, handing U.S. yields their biggest one-day declines in more than two years.

What happened

  • The yield on the 2-year Treasury /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y +0.74% declined 21.6 basis points to 4.092% from 4.308% on Tuesday. That’s the largest one-day decline since Feb. 28, 2020, based on 3 p.m. yields, according to Dow Jones Market Data. Yields move in the opposite direction of prices.

  • The yield on the 10-year Treasury /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -0.18% retreated 25.6 basis points to 3.707% from 3.963%. That’s the biggest daily drop since March 18, 2009.

  • The yield on the 30-year Treasury /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y -0.06% declined 14.9 basis points to 3.680% from 3.829% late Tuesday. It’s the largest one-day decline since March 23, 2020.

What’s driving markets

Treasury yields fell alongside their international peers on Wednesday after the Bank of England stepped in to buy gilts at “whatever scale is necessary” to calm markets. The BoE’s action brought buyers back into U.K. and U.S. bond markets, while also triggering a debate over whether the Federal Reserve and other central banks might shift away at some point from aggressive rate hikes. Read: U.K. response to ‘crisis-style’ bond moves revives debate about a Fed pivot and Did something break? What investors need to know about U.K. financial chaos and a fragile global financial system Prior to Wednesday’s BoE intervention, investors had dumped U.K. government bonds in response to what they deemed a dangerously profligate budget by new finance minister Kwasi Kwarteng. The 10-year gilt yield BX:TMBMKGB-10Y , which had climbed above 4.6% earlier on Wednesday, fell to 4.01% after the BoE’s announcement.In the U.S., fed-funds futures traders pulled back on the probability of a 75 basis point rate hike by the Fed at its November meeting, placing the likelihood at 59% on Wednesday — down from 70% a week ago.

What analysts are saying

Ten-year yields “made it above 4% and to their highest level since 2008 as the selloff in bonds continued overnight, until the Bank of England’s surprise announcement that they will begin purchasing long dated UK bonds beginning today until Oct. 14,” said BMO Capital Markets strategists Ben Jeffery and Ian Lyngen. “The price action across markets this week always ran the risk of breaking something and given the BoE’s rationale centered on restoring ‘orderly market conditions,’ we will point to the combination of the pound and gilts as the first thing to give way.”

add Add to watchlist BX:TMUBMUSD02Y
BX : Tullett Prebon
+0.03 +0.74%
Volume: 0.00
Nov. 25, 2022 2:01p
add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
-0.0065 -0.18%
Volume: 0.00
Nov. 25, 2022 1:58p
add Add to watchlist BX:TMUBMUSD30Y
BX : Tullett Prebon
-0.0021 -0.06%
Volume: 0.00
Nov. 25, 2022 2:03p

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