Government bond yields are falling on economic growth worries, Covid

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The US 10-year Treasury yield fell as low as 1.25% on Thursday, its lowest level since February, and continued a sharp reversal in the bond market amid growing concerns about the pace of the global economic recovery.

The benchmark 10-year Treasury yield fell 4 basis points to 1.281% at 7:50 a.m. ET after hitting 1.25% at the start of the session. The yield on the 30-year government bond fell 5.2 basis points to 1.892%. The returns move inversely to the prices and 1 basis point corresponds to 0.01 percentage points.

“This decline in bond yields could suggest that the inflation spurt is temporary and / or that the delta variant will slow growth, although that seems extreme this morning at 1.25% +4 tons in just over a year to over 8 Tons, ”said Ed Hyman, founder and chairman of Evercore ISI and director of economic research, in a statement Thursday.

The proliferation of the more transferable variant of Covid-19 has fueled concerns about a slowdown in global economic growth and sent investors to the safety of US Treasuries. Japan has declared a state of emergency in Tokyo, which reportedly could lead to a ban on spectators for the upcoming Olympics.

The decline in yields over the past few weeks is a sharp reversal from a dramatic spike that began in late 2020. After hitting below 1% in March, the benchmark 10-year return rose to above 1.7% in March before hovering near 1.6% for much of April.

The move has puzzled investors and some believe that it is mainly technical factors that are driving the decline in returns.

“Inflation expectations have been stable, suggesting that economic forces are not at the center of the downturn,” wrote Christopher Harvey, director of equity strategy at Wells Fargo, in a Thursday release titled “Misleading Bond Signals.” “Rate Player and our Macro team inform us that technical issues related to liquidity, positioning and forced purchases are driving the bus.”

The decline in long-term interest rates even comes as the Federal Reserve signals that it is heading for a possible tightening of its monetary policy stance. Investors believe that the central bank’s first step would be to slow down its asset purchases while keeping interest rates at historic lows. Short-term rates have not fallen at the same rate as long-term, which has led to what is known as a flattening of the yield curve for government bonds.

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On Thursday, the US Department of Labor will publish the number of weekly jobless claims for the week ending July 3 at 8:30 a.m. ET. According to the Dow Jones, economists expect 350,000 first-time applicants for unemployment benefits by the week ending July 3.

It did so after the Federal Reserve posted the minutes of its last meeting on Wednesday, Jan. June had published.

Some members said the economic recovery is progressing faster than expected and is accompanied by an oversized spike in inflation, both of which argue in favor of taking the Fed off the policy pedal.

However, the prevailing mindset was that there should be no rush and that the markets must be well prepared for change.

Auctions for $ 40 billion on 4-week notes and $ 40 billion on 8-week notes will take place on Thursday.

– CNBC’s Jeff Cox contributed to this market report.