Bond Report: Treasury yields add to slide as pressure on crude market intensifies

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U.S. Treasury yields fell Tuesday, extending their previous session’s decline, as the plunge in crude prices highlighted challenges to the U.S. economy in the wake of the COVID-19 pandemic.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, 0.555% fell 5.1 basis points to 0.575%, while the 2-year note rate TMUBMUSD02Y, 0.197% was down 0.9 basis point to 0.193%. The 30-year bond yield TMUBMUSD30Y, 1.147% tumbled 9.3 basis points to 1.141%.

What’s driving markets?

Government bonds continued to see haven inflows as oil futures sold off again on Tuesday. The weakness in commodity markets spilled over into U.S. equities as investors assessed the implications for global demand with crude trading at its lowest levels in years, with the S&P 500 SPX, -1.48% and the Dow Jones Industrial Average DJIA, -1.42% set to open lower.

Futures for West Texas Intermediate crude oil CLM20, -25.20% fell more than 25% to trade at $15.04 a barrel, based on FactSet data.

Lower crude prices can spur demand for government paper through diminishing inflation pressures. Slower growth in consumer prices can shore up the value of a bond’s fixed-interest payments.

Bond traders were also buoyed by the Federal Reserve’s bond buying this week. Though, the central bank halved its Treasury purchases for this week to around $15 billion of bonds on average every day, the Fed’s buying has helped to inject liquidity into the market and drive yields lower.

In U.S. economic data, new home sales for March are due at 10 a.m. ET, with economists expecting sales to run at an annualized 5.24 million.

Low interest rates have helped bolster home buying in recent months but the sudden shock of the pandemic has weighed on demand.

What did market participants’ say?

“The investment theme for the last two weeks was Fed intervention, including mild increases in UST yields as central bank daily purchases slowed quickly. This week, though, starts with a vivid reminder markets are ornery, twisty and hard to predict in any global crisis, even when intervention arrives quickly and in size,” said Jim Vogel, an interest-rate strategist at FHN Financial, in a note.

“Yesterday, oil was a curiosity. Overnight it took a step toward monstrosity with August WTI down as much as $10/barrel in the last 24 hours,” said Vogel.

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