Bond Report: Treasury yields rebound as crude and equity markets stabilize

Bond Report

Congress is rolling out another fiscal stimulus package

U.S. Treasury yields were higher Wednesday as stocks rose on a wave of stronger-than-expected corporate earnings reports and a new economic stimulus package passed by the U.S. Senate.

A rebound in crude prices after an oil futures contract traded below zero for the first time in history earlier this week also helped to ease demand for haven assets like government paper.

What are Treasurys doing?

The 10-year Treasury note yield
TMUBMUSD10Y,
0.608%

rose 4.7 basis points to 0.618%, while the two-year note rate
TMUBMUSD02Y,
0.209%

was virtually unchanged at 0.209%. The 30-year bond yield
TMUBMUSD30Y,
1.199%

picked up 5.7 basis points to trade at 1.219%. Bond prices move in the opposite direction of yields.

What’s driving Treasurys?

U.S. equities staged a modest comeback after a round of better-than-expected earnings reports. Congress is also rolling out a new fiscal stimulus package of $500 billion to replenish funds for a loan program aimed at small businesses. The Senate passed the bill on Tuesday, sending it over to the House of Representatives.

Crude prices rebounded from its earlier dip into negative territory, boosting investor optimism and rolling back some of the bond-market’s rally this week. Anemic commodity prices have underlined the difficult backdrop for the global economy, as consumers cut back spending, factories curtail production, and shops stay shuttered.

The June contract for the U.S. crude benchmark
CLM20,
+14.36%

gained $2.21, or 19%, to settle at $13.78 a barrel on Wednesday.

Fiscal and monetary support has provided hope to those who anticipate the worst of future economic scenarios may have been avoided. At the same time, the Federal Reserve’s bond purchases have anchored borrowing costs for the U.S. government, allowing it to finance the yawning budget deficits expected from the recent stimulus measures.

What did market participants say?

“While the oil market likely has many hurdles ahead of it, today’s rebound was not only good for the equity market, it was good for the bond market because it represents a level of calm that is needed right now,” said Kevin Giddis, chief fixed income strategist at Raymond James, in a note.

“You have unprecedented monetary involvement. That’s certainly one of the most powerful forces helping people look through that short-term malaise,” said Christian Hoffmann, portfolio manager at Thornburg Investment Management, in an interview.

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