Treasury prices rose, pulling yields lower, across the board on Monday after stocks came under pressure, drawing investors into assets perceived as safe.
That helped to reverse a chunk of the decline U.S. government bonds saw in last week, as inflation concerns and strong economic data helped to drive yields higher. Bond prices move in the opposite direction to yields.
How are Treasurys performing?
The yield on the 10-year Treasury note
slipped 5.8 basis points to 2.794%, after rising as high as 2.883% earlier Monday. That marked its biggest one-day decline since Sep. 5.
The 2-year note yield
was down 6.8 basis points to 2.105%, contributing to the biggest one-day decline since March 15. Meanwhile, the 30-year bond yield
slipped 3.2 basis points to 3.067%.
Read: Bond fund manager who called dollar’s slide says ‘it’s not too late to move out of U.S. bonds’
What is driving the markets?
Bonds rallied as stocks plunged, with the S&P 500
ending the day down more than 4% and the Dow ending nearly 1,200 points lower, or down 4.6%. Investors tend to rush into bonds and other assets perceived as havens to shelter from the turmoil in risk assets. The Japanese yen
climbed 0.7%, while gold
was up by 0.3%.
The move more than erased the spike in yield seen after Friday’s January jobs report showed average hourly earnings rose 0.3% in January, above forecasts. That pushed up the 12-month increase to 2.9% from 2.6%, the fastest pace since 2009. The wage growth has added to inflation fears, which can be bearish for bonds.
Expectations for a rate increase in March sharply fell to 93%, from around 99% last week, according to fed fund futures data.
Read: U.S. adds 200,000 jobs with wage growth fastest in more than 8 years
And see: Low unemployment, hiring surge means bigger payday for workers
What are strategists saying?
“You’re seeing somewhat of a flight to quality. Now you’re seeing financial conditions tighten up, that might give the Fed a reason to step back and take financial conditions into consideration, if it starts to have a negative impact on growth,” said James Barnes, director of fixed income for Bryn Mawr Trust.
Read: A ‘Powell put’ for the stock market? Don’t even think about it
“Today was a surprise. We haven’t seen moves like this within either stocks and bonds in quite a while. What makes it somewhat interesting its you had yields getting higher last week and people were speculating that was leading people to readjust their stock pricing,” Barnes said.
What else is on investors’ radar?
Jerome Powell was sworn in as chairman of the Federal Reserve on Monday. Investors are concerned that he is taking the reins as the economy is overheating. That has drawn concerns the Fed may increase the number of rate increases this year.
But if tighter financial conditions add to growth concerns, the Fed may have another reason to take a breather on its hiking trajectory.
Read: Why investors might need to worry more about fiscal policy than the Fed
What are other assets doing?
The yield on 10-year German government bonds
or bunds, gave up 3.3 basis points to 0.733%.