Question

Comment on bond-market activity in recent few weeks such as the price movers of the 10-year Treasury note, issuances of new debt securities, central bank actions/words, and so on. e.g., what causes the price of the 10-year Treasury note to go up or down (called movers)? One possible mover is related to what the central bank says, hints, and does.

Answer 1

The 10 year treasury bonds have fallen drastically in past few weeks due to concerns arising out of coronavirus. There is an expectation of growth slowing down and leading to a long-term recession so any recovery is not visible in in nearby decade, so the bond yields of 10 year old treasuries has fallen drastically into to almost zero zones.

The central bank has cut interest rate to almost Zero which has been a reduction of extreme magnitude as Fed is proactively cutting the interest rates in order to stimulate the demand which will help in surviving economy through the recession

The yield curve has inverted signalling an impending recession and hence Central bank have proactively announced bailout package as well as cut the interest rate signalling a quantitative easing kind of monetary policy for years to come, in order to keep economy afloat.

The movement of prices of bonds are related to change in monetary policy of Central banks which is more inclined towards interest rates in current scenario. Cutting of interest rates is is always negative for the long term bond and it always signals that the central bank is providing the support and stimulus to revive the demand in the economy so the bond market project struggling years ahead full of recession and it goes down substantially.