US two-year yield drops to lowest since July 2016
|- The US two-year yield fell to the lowest in 3.5-years on Tuesday.
- The Fed cut rates by 50 basis points to counter the economic fallout from the virus.
- Treasury yields at both short and the long end of the curve fell sharply on rate cut.
The yield on the US two-year Treasury note fell to a 3.5-year low on Tuesday as the US Federal Reserve (Fed) delivered an emergency rate cut to contain the economic fallout from the coronavirus outbreak in the US and other parts of the world.
The two-year dropped from 0.91% to 0.616% to hit the lowest level since July 2016, before closing the day at 0.697%. The 10-year yield also fell to a record low of 0.91%.
The Fed cut borrowing costs by 50 basis points, its biggest single cut in more than a decade, bringing the interest rate down to a 1 percent to 1.25% range. The US stock markets cheered the rate cut for about 15 minutes before turning lower, The S&P 500 index closed out Tuesday with a 2.81% loss.
Wall Street likely took the rate cut as a sign of panic. "The downside of an emergency rate cut is, of course, that investors see this as an emergency," Jeroen Blokland, Portfolio Manager for the Robeco Multi-Asset funds, Robeco ONE and Robeco Pension Return Portfolio, tweeted.
Also, there is general consensus in the market that rate cuts wouldn't stop viruses or mitigate demand and supply damage caused due to people not being able to leave their homes. “We do recognize that a rate cut cannot reduce the rate of infection, it won’t fix a broken supply chain. We get that — we don’t think we have all the answers,” Fed's Chairman Powell said.
That said, markets may continue to speculate about further easing, keeping yields under pressure as the number of confirmed coronavirus cases outside China continue to rise.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.