Treasury Rally Drags 2-Year Yield to Lowest Since February 2018

(Bloomberg) -- Treasuries rallied, pushing the yield on two-year notes to the lowest level in more than a year, as investors sought safety amid global economic and trade uncertainty.

The maturity’s yield dropped as low as 2.139% Wednesday, the lowest level since February 2018, while the benchmark 10-year Treasury yield fell to 2.36%, close to its 2019 low. The rally followed disappointing Chinese data and a report showing an unexpected drop in U.S. retail sales. It also came with stocks sinking against a backdrop of elevated trade tensions between the U.S. and China after the latest tit-for-tat round of levies.

“Simmering trade tensions, weak overnight Chinese data, and continued declines in risk assets have contributed to a global fixed-income rally, which put downward pressure on Treasury yields,” said Mark Cabana, head of U.S. interest-rate strategy at Bank of America Corp. “The market is clearly pricing in a dour outlook and Federal Reserve easing in the near future.”

Traders have ramped up bets on interest-rate cuts by the Fed. Trading in fed funds futures implies that the central bank’s benchmark will fall to 2.04% by the end of 2019.

--With assistance from Alexandra Harris.

To contact the reporter on this story: Katherine Greifeld in New York at kgreifeld@bloomberg.net

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Mark Tannenbaum

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