A decline in U.S. Treasury yields over recent weeks has investors eyeing the approach of an unusual phenomenon - the entire U.S. yield curve sinking below 1%.
FILE PHOTO: A U.S. Dollar banknote is seen in this illustration taken May 26, 2020. REUTERS/Dado Ruvic/Illustration
The 30-year U.S. Treasury US30YT=RR, at just above 1.22%, is still more than 22 basis points away as of Monday, rebounding from Friday when it touched its lowest since April. Maroutsos said it was a “sign that investors are reaching for any yield they can get regardless of low it is.” On Thursday, the U.S. Commerce Department said U.S. gross domestic product declined at a 32.9% annualized rate last quarter, slightly less than expected but still the deepest decline in output since the government started keeping records in 1947.
Still, he said a counterbalance to downward pressure on yields could be the expected upcoming stimulus and the Treasury’s refunding announcement. Bonds at the long end of the curve are sensitive to inflation risk, as higher prices erode purchasing power and returns. Current inflation stands well below the 2 percent target rate, said Fed Chair Jerome Powell on Wednesday, with the pandemic crushing demand. “I think fundamentally this is a disinflationary shock,” he said.
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