COVID-19

Bond yields hit a record low

Sabri Ben-Achour Feb 28, 2020
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A trader reacts during the opening bell at the New York Stock Exchange on Friday as markets continue to drop from COVID-19 uncertainty. Johannes Eisele/AFP via Getty Images
COVID-19

Bond yields hit a record low

Sabri Ben-Achour Feb 28, 2020
A trader reacts during the opening bell at the New York Stock Exchange on Friday as markets continue to drop from COVID-19 uncertainty. Johannes Eisele/AFP via Getty Images
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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

What’s going on with extra COVID-19 unemployment benefits?

It’s been weeks since President Donald Trump signed an executive memorandum that was supposed to get the federal government back into the business of topping up unemployment benefits, to $400 a week. Few states, however, are currently paying even part of the benefit that the president promised. And, it looks like, in most states, the maximum additional benefit unemployment recipients will be able to get is $300.

What’s the latest on evictions?

For millions of Americans, things are looking grim. Unemployment is high, and pandemic eviction moratoriums have expired in states across the country. And as many people already know, eviction is something that can haunt a person’s life for years. For instance, getting evicted can make it hard to rent again. And that can lead to spiraling poverty.

Which retailers are requiring that people wear masks when shopping? And how are they enforcing those rules?

Walmart, Target, Lowe’s, CVS, Home Depot, Costco — they all have policies that say shoppers are required to wear a mask. When an employee confronts a customer who refuses, the interaction can spin out of control, so many of these retailers are telling their workers to not enforce these mandates. But, just having them will actually get more people to wear masks.

You can find answers to more questions on unemployment benefits and COVID-19 here.

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