Treasuries Rally Drags Curve to Flattest Level in Almost 2 Weeks
U.S. Treasuries advanced as fears over spiking coronavirus cases weighed on stocks.
(Bloomberg) -- U.S. Treasuries advanced as fears over spiking coronavirus cases weighed on stocks and raised concern over the recovery in the global economy.
The nation’s 30-year bonds led the rise, with the rate dipping down more than six basis points and breaching last week’s low. That narrowed the yield gap over five-year securities to the tightest in almost two weeks. The S&P 500 slumped to the lowest since July, dropping for a fourth day as the death toll in the U.S. neared 200,000.
U.K. and German government bonds also climbed as case numbers in Europe jumped. Britain’s Chief Medical Officer Chris Whitty warned on Monday that the nation needed to take the virus “very seriously” for the next six months amid signs that the spread is accelerating. The Stoxx Europe 600 Index declined as much as 3.5%, dragged down by banks, and the Bloomberg Dollar Spot Index reversed losses to rise 0.8%, the most in three months.
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Traders are currently trying to gauge just how big a threat the rising number of cases will be to the economic recovery, whether governments will impose more restrictions on movement, and whether more fiscal and monetary support is necessary. The death of Supreme Court justice Ruth Bader Ginsburg Friday, months before U.S. elections, has also cast doubt on the latest wave of government spending.
“Sentiment is basically risk-off and that’s driving everything,” said Zhiwei Ren, a portfolio manager at Penn Mutual Asset Management. “The market wants more quantitative easing and Federal Reserve policy makers didn’t give what the market wanted. In addition, there could be weeks of uncertainty after the presidential election.”
Global Sell-Off
U.S. 30-year yields dropped to as low as 1.3891% as of 10:30 a.m. in New York, taking the gap over five-year bonds as low as 113 basis points, the narrowest level since Sept. 9.
German 10-year yields slid four basis points to around minus 0.53%, while those on similar-dated gilts fell three basis points to 0.15%. A Belgian bond sale saw the highest demand since 2010.
The S&P 500 was down by as much as 2.7% on the day, and headed for its longest losing streak since February. The Dow Jones Industrial Average Index slid more than 3%.
“It’s all consistent with a more negative outlook on Covid right now,” said Richard Kelly, head of global strategy at Toronto-Dominion Bank. Ginsburg’s death “has definitely polarized the election even more and may reduce the odds of stimulus coming before the election,” he said.
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