HONG KONG/SINGAPORE • Treasury yields tumbled, with the entire curve trading below 1 per cent for the first time in history.
Markets are now pricing for the Federal Reserve to cut policy rates to 0 per cent in the coming months.
Panic ensued yesterday, with the latest leg of the blistering bond rally fuelled by an all-out price war among the world's largest crude producers. Risk assets plunged with S&P futures dropping 5 per cent to hit circuit breakers, while commodity currencies tumbled.
The spread of the coronavirus and its fallout on supply chains and consumer spending have seen a dramatic repricing of global interest-rate expectations in the past month. The jolt lower in oil from the price war will sap inflation, increasing pressure on the Fed to take rates to the lowest since the global financial crisis.
Mr Chris Rands, portfolio manager at Nikko Asset Management in Sydney, said: "The more I think about it, the more it makes sense to me that the US cash rate will fall below zero some time very, very soon. I wouldn't be surprised if the US tries negative rates, especially with the tailspin in oil now adding to the virus fears."
Treasuries, the world's deepest pool of haven assets, had been rallying in the past three weeks as the virus wreaked havoc across the globe. But the stampede for Treasuries comes after a weekend dominated by crisis headlines, including the oil price war, plunging Chinese exports and Italy's virus-induced lockdown.
Adding to the sense of malaise, Japan posted its biggest economic contraction in more than five years, while France said its economy may barely expand.
After sitting on the sidelines for two days, investors piled into Treasuries when markets reopened, driving 10-year yields down 45 basis points to 0.31 per cent, while the 30-year fell to 0.7 per cent. The two-year yield declined 23 basis points to 0.28 per cent.
As European markets opened, 10-year bund yields fell to a record low of minus 0.85 per cent. The entire German curve is now trading under negative 0.55 per cent.
Mr Stephen Miller, adviser at GSFM, a unit of Canada's CI Financial Group, said: "This bond rally we're seeing is just unchartered waters."
BLOOMBERG
