Bond Report: Bond yields tumble, with 10-year rate below 2.8%, as investors sought safety

United States

Demand for Treasurys sent yields tumbling Monday morning as worries over China’s economy added to fears of a faster-than-predicted increase in U.S. interest rates and sent investors out of perceived riskier assets.

What are yields doing?
  • The 2-year Treasury yield  TMUBMUSD02Y, 2.721%  fell 8.5 basis points to trade at 2.628% at 3 p.m. Eastern on Friday, ending a six-day run of gains. The yield traded as low as 2.51%, according to FactSet. Yields and debt prices move opposite each other.
  • The yield on the 10-year Treasury note  TMUBMUSD10Y, 2.903%  fell 8 basis points to 2.825% Monday afternoon, after dipping below 2.8%.
  • The yield on the 30-year Treasury bond  TMUBMUSD30Y, 2.947% fell 5 basis points to 2.893%.
What’s driving the market?

Yields fell sharply early Monday as investors sought the perceived safety of government debt over fears of a lockdown in China’s capital city of Beijing, where millions are now being tested and some business districts have been placed under lockdown.

All three major U.S. stock indexes DJIA, +0.70% SPX, +0.57% COMP, +1.29% opened lower, and commodities CL00, +0.08% fell, as worries over growth in China were added to fears faster Fed tightening might trigger a U.S. recession. Meanwhile, the ICE U.S. Dollar index hit a 2-year high. Yields came off session lows as stocks bounced later in the session, turning positive in afternoon activity.

See: High inflation is sapping the U.S. economy, S&P finds, and customers are balking at higher prices

On Friday, 2- and 30-year bond yields rose while the Dow Jones Industrial Average DJIA saw its worst daily percentage drop since Oct. 28, 2020, as expectations for a faster pace of interest-rate hikes from the Federal Reserve spooked investors.

Read: Fed chief Powell backs moving more quickly on interest-rate hikes

Economic data will swing into focus for investors this week, with the March core personal-consumption expenditures price index, the central bank’s favored inflation indicator, due Friday. The data calendar is empty for Monday.

What are analysts saying?

“Rates across the curve moved lower and the curve steepened before the bid moderated and the extremes of the repricing faded into the close. Similarly, risk assets managed to recover their early-day weakness but the theme of stocks under pressure as earnings season rolls on persists even as 10-year real rates pulled back from their brief foray above zero,” said strategists Benjamin Jeffery and Ian Lyngen of BMO Capital Markets, in a note.