U.S. Treasury yields fell Monday in line with European bond markets, after data in Germany pointed to a deterioration in the eurozone economy that hinted at the possibility of a double-dip recession.
What are Treasurys doing?
The 10-year Treasury note yield BX:TMUBMUSD10Y fell 5.2 basis points to a 10-week low of 1.038%, marking its biggest daily drop since Nov. 12, while the 2-year note rate BX:TMUBMUSD02Y edged 0.2 basis point down to 0.121%. The 30-year bond yield BX:TMUBMUSD30Y slid 5.9 basis points to 1.798%. Bond prices move in the opposite direction of yields.
What’s driving Treasurys?
The struggles of the world’s largest economy in the eurozone drew the attention of bond traders, dragging down government debt yields in the U.S. and Europe.
The German Ifo index tracking business sentiment dropped to 90.1, marking its lowest level since June, from 92.1 in December.
Last week, purchasing manager surveys from the eurozone indicated a pullback in industrial activity in both the services and manufacturing sector. COVID-19 restrictions put in place at the turn of the year have hamstrung the recoveries of European states.
The 10-year German bond yield BX:TMBMKDE-10Y fell 3.9 basis points to negative 0.58%, while the equivalent 10-year Italian note BX:TMBMKIT-10Y dropped 6.6 basis points to 0.68%.
Safe-haven assets also rallied on signs of renewed political jitters in Italy. News reports said Italian Prime Minister Giuseppe Conte was set to resign in order to form a new government, after former Prime Minister Matteo Renzi’s Italia Viva party pulled out from Conte’s government.
Meanwhile, an auction for $60 billion of 2-year Treasury notes on Monday drew strong demand. Analysts cited expectations for the Federal Reserve to keep rates rates near zero for the next few years helped draw bidding for the short-term maturities.
Read: Think higher inflation is coming? The Fed will believe it when it sees it
What did market participants say?
“With the current lockdown measures in place until mid-February and no significant easing in the offing immediately afterward, the short-term outlook for the German economy is anything but rosy,” said Carsten Brzeski, head of global macro for ING.
