Treasury Bond Yields Stay Near Recent Lows

U.S. government yields clung near recent lows even as stock markets rebounded Monday.

The yield on the benchmark 10-year U.S. Treasury note closed at 0.636%, according to Tradeweb. That is unchanged from Friday, when yields posted the largest three-week decline since the week ended April 3. The two-year yield ended the day at 0.158%, down from 0.160% Friday.

Yields have declined in recent sessions, with investors focused on how mounting coronavirus cases will hit efforts to restart the economy. Recent data shows an uptick world-wide, with cases passing 10 million over the weekend, and the unemployment outlook remains uncertain.

"Markets tend to focus on one issue at a time," said Jean Boivin, head of the BlackRock Investment Institute, the think-tank arm of the world's biggest asset manager.

Deutsche Bank analyst Torsten Slok estimates the U.S. would need to create 30 million jobs to get the employment- to-population ratio back to where it was at its peak in 2000. Employment is down by nearly 20 million jobs, or 13%, since February, the month before the pandemic prompted states to shut down huge segments of their economies.

Traders are looking at alternative data to form a clearer picture on reopenings and rising new cases in states including Texas, Arizona and Florida. According to JPMorgan analysts, Chase card data indicated that the level of restaurant spending three weeks ago was the strongest predictor of the rise in new virus cases over the subsequent three weeks.

"The resurgence of infections highlights that the reopening of the economy cannot be delivered overnight," said JPMorgan's Matthew Jozoff, in a note to clients. "COVID-19 is as persistent as Americans are impatient."

Still, even if the economic picture brightens and a solid recovery begins, bond investors are skeptical about whether short-term yields have room to move higher. That is because of unprecedented monetary and fiscal policy deployed to get money directly into the hands of American businesses and consumers.

Mr. Boivin, in BlackRock's midyear outlook, released Monday, said that while the "policy revolution" was essential it has reduced the ballast of nominal government bonds.

"Rates are near their effective lower bounds, and we see inflation risks in coming years," said Mr. Boivin.

Write to Julia-Ambra Verlaine at Julia.Verlaine@wsj.com


  (END) Dow Jones Newswires
  06-29-20 1859ET
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