Bond Report: Treasury yields add to slide as pressure on crude market intensifies

Bond Report

U.S. Treasury yields fell Tuesday, extending their decline in the previous session, as the plunge in crude prices highlighted challenges to the U.S. economy amid the COVID-19 pandemic.

What are Treasurys doing?

The 10-year Treasury note yield

fell 5.4 basis points to a six-week low of 0.571%, while the two-year note rate

was up 0.5 basis points to 0.205%. The 30-year bond yield

tumbled 7.2 basis points to a six-week low of 1.162%.

What’s driving markets?

Government bonds continued to see haven inflows as oil futures stayed volatile. The weakness in commodity markets spilled over into U.S. equities as investors assessed the implications for global demand as crude trades at its lowest levels in years, with the S&P 500 recording back-to-back losses.

Futures for West Texas Intermediate crude oil

settled at $10 a barrel on Tuesday, based on Dow Jones Market Data.

Lower crude prices can spur demand for government paper through diminishing inflation pressures. Slower growth in consumer prices can shore up the value of a bond’s fixed-interest payments.

Bond traders were also buoyed by the Federal Reserve’s bond-buying this week. Though the central bank halved its Treasury purchases for this week to around $15 billion of bonds, on average, every day, the Fed’s buying has helped to inject liquidity into the market and drive yields lower.

In U.S. economic data, existing home sales for March fell 8.5%, running at an annualized pace of 5.27 million.

Low interest rates have helped bolster home-buying in recent months, but the sudden shock of the pandemic has weighed on demand.

What did market participants say?

“There’s an ongoing debate on whether crude just reflects idiosyncratic issues or the drop in demand. Because it’s a spot contract, it could be signalling how bad things are” in the economy, said Lale Topcuoglu, senior fund manager at J O Hambro Capital Management, in an interview.

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