Investors pushed down the yields on long-term U.S. Treasurys to fresh records early Monday, signaling a flight to the safety of government debt.
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Yields fell across Europe and in Japan on the growing prospect for central bank action to battle the economic effects of the coronavirus outbreak, after Japanese and U.K. central banks followed Federal Reserve Chairman Jerome Powell in attempting to reassure markets.
The 10-year U.S. Treasury yield slid to 1.031%, surpassing Friday's intraday low of 1.116%, before recovering to 1.049%. The yield on the 30-year U.S. Treasury dropped to an all-time low in intraday trading of 1.584% before easing back up to 1.617%. The rate on the two-year also fell, touching 0.716%, its lowest since summer of 2016. Bond yields fall when prices rise.
Futures markets show that investors are betting the Fed will cut rates by 0.5 percentage point in two weeks's time, according to data from CME Group. That would take interest rates to a 1%-1.25% range. One week ago, the market was pricing only a 20% chance of a 0.25 percentage point cut, illustrating the stark change in investors' views about the threat from coronavirus.
"Given it's seen as a global shock, a coordinated easing cycle can take hold in our view," said Salman Ahmed, chief investment strategist at Lombard Odier Investment Managers. "It's the Fed which has the most room to ease, while the rest in key economies are just there for moral support at this stage. In Europe and Japan, the need is for stronger fiscal which can make a difference in supporting growth."
On Friday afternoon, Mr. Powell noted the evolving risks from the outbreak and said the U.S. central bank would act to support the economy. On Monday, Japan's Gov. Haruhiko Kuroda said the Bank of Japan would support markets with ample funds.
The Bank of England said it was working closely with government and international partners to ensure all necessary steps were taken to protect financial and monetary stability, raising the prospect of coordinated central bank action to combat the economic effects of the virus.
Meanwhile, the Reserve Bank of Australia could become the first central bank to respond to the crisis if it cuts rates at its meeting Tuesday.
German 10-year bond yields slipped to minus 0.655%, from minus 0.606% Friday, while Japanese yields were down at minus 0.141%, from minus 0.153% Friday.