Not in my lifetime: How the Treasury yield collapse surprised nearly everyone
By Saqib Iqbal Ahmed (Reuters) - Investors who thought U.S. Treasury yields could not get any lower received another shock Monday.
By Saqib Iqbal Ahmed
(Reuters) - Investors who thought U.S. Treasury yields could not get any lower received another shock Monday.
A plunge in oil prices combined with worries about the spreading coronavirus combined to drive market participants into Treasuries, accelerating a years-long rally that has taken yields on the 10-year Treasury to below 0.5%, a number few investors thought they would see in their lifetimes.
Bond yields fall as their prices rise. Other key factors that have stoked the move higher in U.S. government bonds include unprecedented asset purchases by the Federal Reserve, stubbornly low inflation, changing U.S. demographics and slower growth.
U.S. 10-year Treasury yield https://fingfx.thomsonreuters.com/gfx/mkt/13/2934/2899/Pasted%20Image.jpg
Few analysts got the call right. Forecasts have consistently overshot the eventual path of bond yields over the years.
Plunging 10-year Treasury yield defies forecasts https://fingfx.thomsonreuters.com/gfx/mkt/13/2921/2886/Pasted%20Image.jpg
The Fed delivered a rare intermeeting 50-basis point rate cut last week. Investors are betting the central bank will deliver at least another 75 basis points in rate cuts this month, according to CME's FedWatch tool.
But while the U.S. has room to ease, yields in Europe and Asia are already near record lows. A slimmer gap between yields in the United States and other economies could make some assets, such as the U.S. dollar, less attractive to yield-seeking investors.
Gap between U.S. and German 10-year government bond yields https://fingfx.thomsonreuters.com/gfx/mkt/13/2981/2946/Pasted%20Image.jpg
Some investors believe yields on some U.S. government bonds may one day fall below zero, a move that would contribute to the world’s already-massive pile of negative yielding debt.
Guggenheim Partners Global Chief Investment Officer Scott Minerd said his firm's models indicate the yield on the 10-year Treasury note will hit -50 basis points before year-end.
Fed officials have said they are opposed to negative interest rates in the U.S.
World's negative yielding debt https://fingfx.thomsonreuters.com/gfx/editorcharts/USA-BONDS/0H001R8EZC6J/eikon.png
Ultra-low payouts on U.S. government bonds could supercharge the hunt for yield in other assets, including dividend paying stocks and gold.
Dividend yield on S&P 500 vs U.S. 10-year yield https://fingfx.thomsonreuters.com/gfx/mkt/13/2947/2912/Pasted%20Image.jpg
Gold price https://fingfx.thomsonreuters.com/gfx/mkt/13/2987/2952/Pasted%20Image.jpg
(Reporting by Saqib Iqbal Ahmed; Additional reporting Lawrence Delevingne; Editing by Ira Iosebashvili and Steve Orlofsky)
This story has not been edited by Firstpost staff and is generated by auto-feed.
By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States
BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.