The Bond Market Is Trying to Tell Us Something (Worry).
10-year Treasury yield slumps to Nov. 2016 low as global growth fears take hold.
U.S. Treasury yields tumbled Tuesday as major central banks indicated their openness to easier monetary policy, with the Reserve Bank of Australia cutting interest rates, amid signs of sluggish global economic growth.
What are Treasurys doing?
The 10-year Treasury yield TMUBMUSD10Y, -1.26% slumped 5.5 basis points to 1.978%, its lowest since Nov. 8 2016. The benchmark maturity marked its biggest daily yield decline in a month.
The 30-year bond yield TMUBMUSD30Y, -1.43% declined 4.9 basis points to 2.508%, its lowest since Oct. 2016. It marked its biggest daily drop in around three weeks. The 2-year note rate TMUBMUSD02Y, +0.02% was down 2.4 basis points to 1.765%. Bond prices move in the opposite direction of yields.
What’s driving Treasurys?
Bank of England Governor Mark Carney said the risk of a full-blown trade war threatened to hamstring global and domestic U.K. growth, comments which were viewed as dovish by market participants. He said both a trade war and a no-deal Brexit was a growing possibility but not a certainty.
As expected, the Reserve Bank of Australia cut interest rates for a second time in as many meetings in a bid to lower unemployment and bolster inflation. The Australian central bank’s move comes as other major central banks have also embarked on policy easing measures of their own as global growth fears become entrenched.
The RBA cut rates by a quarter of a percentage point to put benchmark rates at 1%, coming after a separate 25 basis point cut at its last monetary-policy gathering. The 10-year Australian government bond yieldTMBMKAU-10Y, +1.12% was down a single basis point to 1.33%, Tradeweb data show.
In trade news, the White House pivoted to Europe, threatening to impose tariffs on a further $4 billion of European goods in response to European aircraft subsidies. That move comes after President Donald Trump and China President Xi Jinping achieved a trade truce over the weekend at the Group of 20 meeting that set the stage for modest market gains on Monday.
What did market participants’ say?
“Manufacturing sectors are showing signs of a slowdown, and part of the lower yields is reflecting this slowdown. Plus, we have shifts in monetary policy not from just the Fed, but also potential injections of more policy stimulus from the ECB and Japan,” Steven Oh, head of global fixed income and credit at PineBridge Investments, told MarketWatch.
“All the major central banks shifting their bias in a very short-term period towards more accommodation have pulled down global interest rates,” said Oh.
What else is on investors’ radar?
Back in the U.S., Cleveland Federal Reserve President Loretta Mester said interest-rate cuts were only necessary if economic data deteriorated in a more material way. She is a voting member of the rate-setting Federal Open Market Committee.
News reports said European leaders had nominated the International Monetary Fund head Christine Lagarde to succeed Mario Draghi as the next leader of the European Central Bank. Draghi is set to conclude his term on oct. 31.