The yield on the benchmark 10-year Treasury note hit its lowest level ever Friday, a bit over 1.1%. That means the government can borrow $100, do whatever it wants with that money for a decade, and then at the end of it, pay back just a $101 and some change. That’s basically free money.
We pay attention to bond yields because they can tell us a lot about where the economy’s going and where investors’ heads are at.
Yield just means how much money you’re going to make on a bond. Very simply, if bond yields are falling, it means investors are paying more money to purchase bonds with smaller payoffs.
“Crazy lows, I’ve never seen it this low,” said Ken Kuttner, a professor of economics at Williams College in Williamstown, Massachusetts. “This is unprecedented.”
So why would investors put money in bonds with very little payoff? One reason is that the stock market is terrifying. Fears about COVID-19, the disease caused by the new coronavirus, have wiped out as much as $6 trillion of value from global markets.
“When there’s a lot of volatility in the stock market, investors are going to be pulling their money out of stocks, [and] they have to put it somewhere,” Kuttner said.
U.S. Treasurys are just about the safest place you can put your money. Investors are saying low payoffs be damned, the world out there is very unsafe for my money. Torsten Slok, chief economist at Deutsche Bank, said there’s a lot of uncertainty about what will happen in the economy going forward.
He said all the regular numbers that might normally offer some reassurance, like the jobs numbers that come out next week, are not useful right now.
“Even those indicators will not give us any information about how consumers and companies will and have reacted,” Slok said.
People are flying blind. Another reason why investors are OK with smaller and smaller yields on bonds is because they think low returns are going to be the norm for a while. Specifically, they believe interest rates are going to fall.
“Now it looks like markets are expecting the [Federal Reserve] to cut interest rates three times this year,” said Seth Carpenter, chief economist at UBS. “Usually, the market makes that kind of inference because they expect some sort of weakness or at least risk of weakness of the U.S. economy.”
The one thing that investors — and everyone else — need right now is a better idea of just what COVID-19 will or will not do to the global economy.
COVID-19 Economy FAQs
With a slow vaccine rollout so far, how has the government changed its approach?
On Tuesday, Jan. 12, Health and Human Services Secretary Alex Azar announced changes to how the federal government is distributing vaccine doses. The CDC has expanded coronavirus vaccine eligibility to everyone 65 and older, along with people with conditions that might raise their risks of complications from COVID-19. The new approach also looks to reward those states that are the most efficient by giving them more doses, but critics say that won’t address underlying problems some states are having with vaccine rollout.
What kind of help can small businesses get right now?
A new round of Paycheck Protection Program loans recently became available for pandemic-ravaged businesses. These loans don’t have to be paid back if rules are met. Right now, loans are open for first-time applicants. And the application has to go through community banking organizations — no big banks, for now, at least. This rollout is designed to help business owners who couldn’t get a PPP loan before.
What does the hiring situation in the U.S. look like as we enter the new year?
New data on job openings and postings provide a glimpse of what to expect in the job market in the coming weeks and months. This time of year typically sees a spike in hiring and job-search activity, says Jill Chapman with Insperity, a recruiting services firm. But that kind of optimistic planning for the future isn’t really the vibe these days. Job postings have been lagging on the job search site Indeed. Listings were down about 11% in December compared to a year earlier.
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