Treasury 5-Year Yield Falls to Match Record Low

(Bloomberg) -- The U.S. Treasury five-year note’s yield matched a record low Monday as expectations for Federal Reserve policy continued to drive gains for that segment of the market.

The rate declined as much as 3.15 basis points to 0.2705%, equaling the level reached on May 8, when 2-year yields also fell to record lows amid speculation that the Fed would eventually drop its resistance to negative policy rates. The five-year segment outperformed both shorter- and longer-dated notes Monday.

The move back to the yield’s lowest level ever reflects expectations that the Fed, having already lowered the main policy rate to zero, will eventually adopt yield caps for intermediate maturities to further support the U.S. economy.

The five-year yield began the year at 1.71% and exceeded 0.50% as recently as June 5, but has dropped this month as some investors grow increasingly concerned about rising coronavirus cases.

“There’s been a real disconnect between the real economy and financial markets,” Derek Tang, an economist at LH Meyer/Monetary Policy Analytics in Washington, said of Monday’s move. “Virus news has lately taken a turn for the worst, and we will likely see other parts of the curve get lower and approach negative.”

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