Those who have bet on fear overtaking the market by piling into U.S. Treasury bonds have been rewarded handsomely so far in 2020, as prices on safe-haven government debt have risen and yields have fallen significantly.
Why it matters: The bond market is sending a clear signal that investors are nervous — tensions continue to ratchet higher in the Middle East, new wrinkles are revealed in President Trump's impeachment trial, and the coronavirus outbreak is claiming more lives.
What happened: Yields on the benchmark 10-year Treasury note hit a three-month low Wednesday and have fallen by 28 basis points since the beginning of the year.
- The S&P 500 has see-sawed for most of the month and U.S. stock indexes have failed to gain much traction, despite strong earnings results from big banks and top tech companies.
Remember, the stock market boomed and bond yields rose in the fourth quarter of 2019.
- That was when the trade war looked to be calming, Brexit appeared settled, and the Fed papered over troubles in the systemically important repo market by injecting more than a trillion dollars of cash and adding $400 billion of assets to its balance sheet.
But geopolitical risks have again taken center stage, and the market has responded with long-dated Treasury yields dropping back toward historic lows.
- The yield on the 30-year bond has fallen to within 12 basis points of its all-time low.
State of play: Chair Jerome Powell announced during yesterday's FOMC press conference that the Fed would continue the repo market injections and keep adding to its balance through April but would reduce the amount.
- The stock market erased its gains for the day following those comments, with the S&P ending the day lower.
What's next: The World Health Organization will hold an emergency meeting today to discuss whether to declare a public health emergency of international concern due to the outbreak of the novel coronavirus, which has now killed at least 170 people and infected more than 7,800.
- On the economic front, the Commerce Department will release the first estimate of U.S. fourth quarter GDP.