Treasuries in Biggest Rally Since Early Months of Covid Pandemic
(Bloomberg) -- Concern about the latest Covid variant on Friday drove 10-year Treasury yields to their biggest one-day drop since the early months of the pandemic.
Investors dumped riskier assets and flocked to haven markets as they dialed back bets on the pace of central bank policy tightening. The rally in Treasuries pushed the yield on the benchmark 10-year note down 16 basis points to close around 1.47%, its largest single-session decline since March 2020.
Poor post-holiday liquidity in Treasuries appears to have amplified the move, along with widespread positioning in favor of a monetary policy shift in the opposite direction. Two- and five-year yields had reached their highest levels of the pandemic on Wednesday, providing increased scope for Friday’s post-Thanksgiving turnaround.
“It remains to be seen how much of a global impact the new variant may have, but if there is another big outbreak resulting in more restrictive measures by governments across the globe, it may delay the more hawkish central bank policy currently priced in by front-end markets,” said Zachary Griffiths, rates strategist at Wells Fargo Securities. “I’d imagine that thin markets are only exacerbating the sell-off in risk assets and rally in safe havens.”
On Thursday, economists at Goldman Sachs Group Inc., said they expected the Federal Reserve would move faster than expected in their tapering of monetary policies, as inflationary pressures build.
The central bank will double the pace it’s withdrawing its massive asset purchase program to $30 billion a month from January and start raising interest rates from near zero in June, the economists led by Jan Hatzius said in a report to clients on Thursday.
Rate hikes will occur in September and December, and again twice in 2023, the economists said, revising their previous forecast of a hike in July and November.
Meanwhile, traders on Friday pushed back the timing of a first 25-basis-point rate increase by the Fed to September from June.
The pain is being felt across global markets, hitting equity benchmarks, emerging-market stocks and bonds, and the Bloomberg dollar index. The new strain, identified in South Africa, is sparking fear of another resurgence.
The news is “a harsh reminder that we are still dealing with a pandemic that is not completely under control,” Griffiths said.
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