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Treasury yields fell slightly on Monday as lower crude prices buoyed bond-market trading amid signs of continued distress in the U.S. and global economy.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, 0.607% fell 3 basis points to 0.625%, while the two-year note rate TMUBMUSD02Y, 0.213% was virtually unchanged at 0.200%, around its lowest since September 2011. The 30-year bond yield TMUBMUSD30Y, 1.220% slumped 4.2 basis points to 1.234%. Yields and bond prices move in opposite directions.
What’s driving Treasurys?
May futures for West Texas Intermediate crude CLK20, -176.73% fell below zero to settle at negative-$37.63 a barrel on the New York Mercantile Exchange. That helped to drive down the 10-year breakeven rate, or what buyers of Treasury inflation-protected securities expect consumer prices to look like over the next decade, by 8 basis points to 0.94%.
Lower crude prices can diminish inflationary pressures, a corrosive influence on bonds and their fixed-interest payments. Investors noted the sharp slide in the May futures contract could reflect a lack of available storage as the contract is set to expire on Tuesday.
Depressed commodity prices also point to the global economic doldrums and tepid demand, a backdrop particularly difficult for shale producers in the U.S. and others in emerging-market nations that export crude.
Some countries in Europe have considered re-opening their economies, lifting some of the punishing lockdowns that have weighed on business activity and consumer spending. But analysts say it’s unclear if this is an unalloyed positive for growth, as a premature easing of social-distancing guidelines and work restrictions could bring about a second wave of infections.
What did market participants say?
“The reality of low global oil demand isn’t new information and, as such, we’re sympathetic to a reluctance to break the range in 10-year yields as a result. Even breakevens have been remarkably stable — a fact we’ll attribute to the ‘one contract wonder’ dynamic as well,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, in a note.
