Bond Report: Treasury yields slide as policy response to coronavirus comes into focus

U.S. Treasury yields slipped lower on Wednesday as the economic impact of the COVID-19 epidemic weighed on investor sentiment, amid questions of how policymakers in Europe and U.S. would act to ease the coronavirus impact on economic activity.

What are Treasurys doing?

The 10-year Treasury note yield

TMUBMUSD10Y, -13.26%

  fell 5.2 basis points to 0.700%, while the 2-year note rate

TMUBMUSD02Y, -16.95%

  was down 5.3 basis points to 0.434%. The 30-year bond rate

TMUBMUSD30Y, -6.76%

  slipped 3.7 basis points to 1.196%.

What’s driving Treasurys?

The Bank of England announced an emergency interest rate cut of 50 basis points to 0.25%, and also removed the so-called counter-cyclical capital buffer to free up to $190 billion of funds in banks that could be lent out to businesses dealing with the coronavirus. This is the second time the buffer has been cut since the 2016 Brexit vote.

Elsewhere in Europe, German Chancellor Merkel said she was open to doing away with the country’s rule on balanced budgets, suggesting the government could increase the deficit to finance the budget.

The White House will convene a meeting later Wednesday with heads of U.S. banks to discuss measures to support small and medium businesses.

Futures for the S&P 500

SPX, +4.94%

  index and the Dow Jones Industrial Average

DJIA, +4.89%

  pointed to a lower open for Wall Street. Equities in Europe, however, saw a modest rise on an expectation for additional stimulus measures by the European Central Bank at its Thursday meeting and by eurozone governments.

In U.S. economic data, investors will digest the consumer price data for February at 8:30 a.m. ET. Economists polled by MarketWatch expect inflation to come in flat for the month.

The U.S. Treasury Department will sell $24 billion of 10-year notes in the afternoon, which could influence trading in government paper. The sale will draw attention as the notes are likely to fetch its lowest yield in the history of auctions for the benchmark maturity.

What did market participants’ say?

“There will continue to be a bid for safe-haven assets albeit sentiment has and will continue to change on a minute by minute basis. Of note, this auction will be underwritten at a new all-time low yield,” said Justin Lederer, Treasury analyst at Cantor Fitzgerald, in a note.

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