Bond Report: Treasury yields jump even as stocks reel in amid stimulus worries, travel restrictions

U.S. Treasury yields came off their lows on Thursday even as major stock indexes entered a bear market, raising questions around whether investors reeling from losses in the past few weeks were selling Treasurys to free up cash.

Equities took a blow as investors honed in on a lack of swift fiscal stimulus measures, and recently imposed restrictions on travel between the U.S. and Europe.

What did Treasurys do?

The 10-year Treasury note yield

TMUBMUSD10Y, +19.45%

 rose 2.5 basis points to 0.842%, while the two-year note rate

TMUBMUSD02Y, +13.76%

  was virtually flat at 0.483%. The 30-year bond yield

TMUBMUSD30Y, +20.06%

  climbed 9.7 basis points to 1.402%. Bond prices move in the opposite direction of yields.

See: These are the ‘highly unusual disruptions’ in U.S. bond market that forced the Fed to ramp up support to Wall Street

What’s driving Treasurys?

Stocks sold off after President Donald Trump announced a ban on travel from Europe to the U.S. by foreign nationals to stem the spread of the COVID-19 outbreak, adding to worries that the move could hurt cross-border economic activity.

Analysts say the U.S. government will need to enact more targeted fiscal stimulus measures to arrest the economic damage from the coronavirus epidemic. The lack of an aggressive fiscal response has weighed on investor sentiment this week.

Yet the selling in equities on Thursday did not spark haven bidding for government paper, drawing puzzlement among investors and traders, who suggested the counterintuitive action may have been a result of some investors selling Treasurys to free up cash to handle redemptions or to deal with margin calls.

The S&P 500

SPX, -9.51%

  and the Nasdaq Composite

COMP, -9.43%

  slipped into a bear market on Thursday, joining the blue-chip Dow Jones Industrial Average

DJIA, -9.99%


The Federal Reserve tried to soothe issues in the U.S. bond market on Thursday. It tweaked its asset purchases between mid-March and mid-April, buying not just short-term Treasury bills but bonds across different maturities. The U.S. central bank also said it would deploy an additional $1.5 trillion in longer-term repo financing this week.

Read: Fed seen cutting interest rates to 0% soon in bid to help weather coronavirus storm

The European Central Bank also struggled to calm investor nerves after ECB President Christine Lagarde said her job was not to “close spreads,” a reference to the yield difference between German government bonds and other European sovereign debt.

The ECB, however, did expand its bond-buying program and roll out cheap loans to banks.

What did market participants say?

“This is the complexity of the market. There are moments where part of one institution has to sell and get cash, so they have to liquidate Treasurys,” said Clifton Hill, global macro portfolio manager at Acadian Asset management, in an interview.

“When we’re seeing yields on Treasurys going up at the same time as equity markets are melting down, you’re thinking about what’s up with liquidity in the Treasurys market,” Kevin Giddis, chief fixed-income strategist at Raymond James, told MarketWatch.

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