Treasury Yields Hit Fresh Record Lows; Energy Bonds Slide
February 26 2020 - 6:25PM
Dow Jones News
By Matt Wirz
U.S. government-bond yields, reversing Wednesday's early rise,
were dragged down to fresh all-time lows amid new signs that the
coronavirus is spreading.
Investors initially paused in buying Treasurys mostly because
yields, which fall as bond prices rise, dropped to record lows
Tuesday, traders and analysts said. Demand rose again following
reports of new coronavirus cases in places including South
America.
The yield on the benchmark 10-year Treasury closed Wednesday at
1.310%, down from Tuesday's then-record-low close of 1.328%. The
30-year bond's yield fell to 1.796% from 1.803% Tuesday.
The record-low yields in Treasurys suggest investors see a
relatively high chance that the U.S. Federal Reserve could cut
interest rates soon, but so far economic indicators don't bear that
up, said Thomas Simmons, an economist at Jefferies LLC.
Economic fallout from the virus isn't likely to have a material
impact on the U.S. economy until the second quarter of the year,
and it will take more time for that data to be disseminated, Mr.
Simmons said. Fed officials next meet to consider changing interest
rates in mid-March.
"The 10-year broke through a record-low yield yesterday, and
it's hard to see the market going much further absent more bad
news," he said.
Bonds of energy companies weakened Wednesday as investors braced
for more bad news from oil and gas producers.
Chesapeake Energy Corp.'s bond due 2025 fell to 66.75 cents
Wednesday after the company reported a decline in revenue, down
from 72.25 Tuesday, according to data from BondTicker. Occidental
Petroleum Corp.'s bond due 2049, one of the most actively traded
corporate bonds in the U.S. on Wednesday, fell as low as 102.28
cents on the dollar from 105.60 on Tuesday. The company is slated
to report earnings this week.
More broadly, rising prices of Treasurys have boosted
investment-grade corporate bonds, which typically move in lockstep
with the government debt. Investment-grade corporate bonds returned
3.6% this year through Tuesday, compared with a 4% gain in U.S.
government bonds and a roughly 3% loss in U.S. stocks, according to
research from CreditSights.
The spread between yields of investment-grade bonds and
Treasurys is likely to widen slightly, but investors "shouldn't be
fussed about that, " said Erin Lyons, a strategist at CreditSights.
The yield differential of about 1.13 percentage points is larger
than that of many other comparable bonds, giving the corporate debt
good relative value, she said.
The WSJ Dollar Index, which measures the U.S. currency against a
basket of 16 others, rebounded Wednesday to 92.21 from 91.97 on
Tuesday.
Write to Matt Wirz at matthieu.wirz@wsj.com
(END) Dow Jones Newswires
February 26, 2020 18:10 ET (23:10 GMT)
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