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
HTML EMBED:
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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

Millions of Americans are unemployed, but businesses say they are having trouble hiring. Why?

This economic crisis is unusual compared to traditional recessions, according to Daniel Zhao, senior economist with Glassdoor. “Many workers are still sitting out of the labor force because of health concerns or child care needs, and that makes it tough to find workers regardless of what you’re doing with wages or benefits,” Zhao said. “An extra dollar an hour isn’t going to make a cashier with preexisting conditions feel that it’s safe to return to work.” This can be seen in the restaurant industry: Some workers have quit or are reluctant to apply because of COVID-19 concerns, low pay, meager benefits and the stress that comes with a fast-paced, demanding job. Restaurants have been willing to offer signing bonuses and temporary wage increases. One McDonald’s is even paying people $50 just to interview.

Could waiving patents increase the global supply of COVID-19 vaccines?

India and South Africa have introduced a proposal to temporarily suspend patents on COVID-19 vaccines. Backers of the plan say it would increase the supply of vaccines around the world by allowing more countries to produce them. Skeptics say it’s not that simple. There’s now enough supply in the U.S that any adult who wants a shot should be able to get one soon. That reality is years away for most other countries. More than 100 countries have backed the proposal to temporarily waive COVID-19 vaccine patents. The U.S isn’t one of them, but the White House has said it’s considering the idea.

Can businesses deny you entry if you don’t have a vaccine passport?

As more Americans get vaccinated against COVID-19 and the economy begins reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.

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