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U.S. Treasurys gained in price on Monday, lifting yields, as investor sentiment soured over the failure by lawmakers in Congress to agree on a fiscal stimulus package intended to cushion the blow from the COVID-19 disease.
The Federal Reserve also launched a raft of measures to calm financial markets, including a pledge to buy an unlimited amount of Treasurys and mortgage-backed securities.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, -5.62% tumbled 22.4 basis points to 0.714%, while the 2-year note rate TMUBMUSD02Y, -3.81% was down 6.8 basis points to 0.294%. The 30-year bond yield TMUBMUSD30Y, -0.50% slipped 21.8 basis points to 1.344%. Bond prices move inversely to yields.
What’s driving Treasurys?
The Federal Reserve said on Monday it could purchase an unlimited amount of Treasurys and mortgage-backed securities, and would buy $375 billion of U.S. government paper this week alone. The Fed had previously set a $700 billion limit for asset purchases.
The U.S. central bank also announced three new lending facilities to support consumer and business credit markets. The Fed said it would soon roll out lending programs targeting small and medium-size businesses.
Investors also attributed to the bullish sentiment to Congress’ struggles to pass a fiscal stimulus package that would limit the economic damage to businesses and individuals from the coronavirus.
Futures for the S&P 500 ESM20, +2.11% punched higher after trading sharply lower earlier in the session, before the Fed’s announcement. Those futures hit their 5% daily limit at the start of futures trading Sunday evening.
Meanwhile, the Treasury Department is set to sell $113 billion of government bonds across short-dated maturities this week. The new debt supply could weigh on trading for government paper, but analysts say the Fed’s increase bond-buying could offset the bearish impact of the auctions.
Read: Fed announces unlimited QE and sets up several new lending programs
What did market participants’ say?
“A vote may take place in the US Senate at some point today/ tomorrow but won’t lighten the toll of Covid-19. With infections and fatalities spreading, the question for policy makers and investors is after what level of contraction in the economy and when a sense of normality will return. One quarter, two quarters, one year?” said Kenneth Broux, a strategist at Société Générale.
