Bonds Rise from Record Lows as Stocks Rebound After Huge 2-Day Flush

A trader works ahead of the closing bell on the floor of the New York Stock Exchange in New York City on March 18, 2019. (Johannes Eisele/AFP/Getty Images)

Yields on the benchmark 10-year U.S. Treasury note rebounded Wednesday after being driven down to a record low the day before amid a huge two-day Wall Street selloff sparked by growing coronavirus fears.

As of 10:50 EST Wednesday, the 10-year Treasury note yield rose to 1.354 percent, after hitting an intraday record of 1.31 percent the day before. The 2-year note yield edged up to 1.196 percent, while the 30-year bond yield climbed to 1.83 percent.

Assets like government securities serve as safe harbors in times of turbulence, when markets are awash in risk-off sentiment.

Driving down investor appetite for risk assets in recent days were new reports of the spread of the COVID-19, including a warning by officials that Americans should prepare for the deadly virus spreading in communities.

“It’s not so much of a question of if this will happen in this country anymore but a question of when this will happen,” the CDC’s Dr. Nancy Messonnier told reporters.

“We are asking the American public to prepare for the expectation that this might be bad.”

The rise in U.S. Treasury yields—which move in the opposite direction to prices—took place in step with key Wall Street indices, which picked up after their two-day flush.

The S&P 500—a barometer of the U.S. equity market—rose by over 1.5 percent in morning trading, hitting 3,175 at 10:42 EST on Feb. 26.

Chart showing the S&P 500 on Feb. 26, 2020. (Courtesy of TradingView)

Dollar Rebounds

The U.S. dollar also rebounded on Wednesday from a two-week low hit in the previous session in step with U.S. equity markets, though moves were muted as investors remained cautious regarding the extent of the virus threat.

The dollar was also dented as investors scaled back expectations that the U.S. Federal Reserve would signal more policy easing in response to the spread of COVID-19 outside of China.

As the coronavirus spread, some investors no longer saw the U.S. economy as immune and started to bet the Fed would have to cut interest rates to support growth.

But Fed Vice Chair Richard Clarida said on Tuesday that while the central bank is “closely monitoring” the impact of the epidemic on the U.S. economy, it is too soon to say if its impact will lead to a “material change” in the economic outlook, the Fed’s oft-repeated criterion for a potential interest rate cut.

“We are closely monitoring the emergence of the coronavirus,” Clarida said in prepared remarks at the National Association for Business Economics conference in Washington. “But it is still too soon to even speculate about either the size or the persistence of these effects, or whether they will lead to a material change in the outlook.”

Expectations of a rate cut at the Fed’s June meeting fell from 80.8 percent to 79.2 percent today, according to CME Group’s FedWatch tool.

While the Fed has so far held fast to its wait-and-see stance on rates, some market participants believe the coronavirus fallout will force the Fed to act.

“Our base case is for two cuts this year, with a higher probability of three cuts than one cut,” said Allen Sukholitsky, chief macro strategist at Xallarap Advisory, in an emailed statement to The Epoch Times.

Reuters contributed to this report.