Yields on 10-year U.S. Treasury notes have been stuck around 0.66 percent, not far from their mid-March historic low of 0.5 percent, indicating that investors foresee a gloomy economic future.
The yield now is near half of its previous historic lows.
The low yield on long-term debt signals that investors see the treasury buying bonds to shore up the economy for years to come. The steadiness of that yield indicates investors are confident in that view, analysts say.
Investors are betting the Fed will do again what it did in the Great Recession: leave interest rates low for years to foster economic recovery and let rates rise a bit only when inflation shows signs of reviving.
Now, with unemployment approaching Great Depression levels and prices falling across almost all economic sectors, the prospect of inflation is remote.
Interest rates often contain a “risk premium,” which is an interest rate that rises in tandem with an investment’s level of risk.
But treasuries’ risk premium is “basically zero or nonexistent,” said Thanos Bardas, who analyzes global interest rates for investment management firm Neuberger Berman.
Also, the Fed has slowed its bond-buying spree from as much as $75 billion a day in March to around $6 billion a day recently. That potentially leaves more bonds available for others to buy. But the increase in supply has not brought bond prices down, which would let yields rise. (When bond prices fall, their yields increase.)
“Globally, there’s tremendous demand for that high-quality debt,” said Colin Robertson, chief of fixed income investments at Northern Trust Asset Management. That demand also is keeping bond prices high. The bond market’s pessimism contrasts with stock markets’ euphoria, which has re-established the years-long bull market that prevailed until the pandemic arrived.
PUBLISHER’S NOTE: The stock market is a gambler’s den; the bond market is conservative. Continued low yields on ten-year securities indicate a recovery will be long, slow, and painful.
This reading of the recovery aligns with gold prices holding steady in recent high territory.
