Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
The 10-year and 30-year Treasury bond yields are currently at their historic lows. Tuesday’s FED rate cuts have surprised traders as investors are now leaving stocks aside and moving for safer bonds.
The economic effects of the rising coronavirus spread have forced policymakers to take instant corrective measures. Last week, the S&P 500, Nasdaq, and Dow Jones plunged around 10%, one of the nastiest corrections in the market after the 2008 financial crisis. To combat it, the Federal Reserve had to chip in and announce emergency rate cuts. The 10-year Treasury yield dropped nearly 11 basis points and below 1% on Tuesday, March 3. Precisely, it has dropped at an all-time record low of 0.906%. Also, the 30-year Treasury bond was at a record low of 1.601%.
Concerned with the economic fallout due to coronavirus, the Fed slashed its interest rates by half-a-percentage point during its policy meeting. This was the first-ever such emergency cut after the 2008 financial crisis. Earlier, the Fed was likely to decide on its rates on March 18 next week. However, it looks like the virus impact has forced Fed to chip in early. In its statement, the Fed said:
“The coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate.”
Fed’s Rate Cuts Puts Markets in Correction, 10-year Treasury Yield at Its Historic Low
The Fed’s decision took the traders by surprise as the market witnessed yet another correction after Monday’s recovery. Later in the news conference, Fed Chairman Jerome Powell said that the committee saw a risk to the economy and thus chose to act. Speaking on this matter, Peter Boockvar, chief investment officer at Bleakley Advisory Group, said:
“Financial conditions only ease if market participants are confident enough to take a risk but because of the huge economic unknowns right now still, investors will remain risk-averse thus diluting the impact of this move. As for encouraging higher consumer and business confidence, this type of panicky move, when the Fed has only 4 more rates to cut, I believe does the exact opposite”.
With the global coronavirus cases going 90,000, investors have started to panic. With the prolonged effect of the virus, investors are fleeing out of the stock markets and moving to safer options like bonds. The market is also buzzing with the fears of a possible economic recession.
While the Treasury yields, including 10-year Treasury yield, have hit historic lows, investors are blaming global central banks. Reportedly, global central banks have attempted quantitative easing at the fastest rate since the financial crisis. The Deutsche Bank said that around $15 trillion of government bonds worldwide are trading at negative yields.