The yield on the 10-Year Treasury Bond, the benchmark for overall rate concerns, dropped to its lowest level since 1960. Should the rate stay at the current levels for more than a month, it will be the lowest sustained level in more than 100 years.
The decline in yields has been precipitated, in large part, to the coronavirus outbreak and investor anxiety. However, the bond yields had dropped significantly over the past decade — with July 2016 being the previous low.
Fear and Yield
The bond yield — defined as the return an investor should expect by holding the bond to maturity — has declined due to fear. Fear in the market causes investors to flood into more stable asset classes. Treasuries function in that capacity.
As investors buy bonds, their willingness to take lower returns to protect their funds drives the yield down. This fear, when sustained over time, pushes the overall return for Treasuries down to current levels.
Bond, Safe Bond
The attraction for Treasury bonds and, particularly, the United States 10-Year Bond, is based on the assumed stability of the U.S. economy. Further, investors bank on the ability of the U.S. government to make good on its debts.
For this reason, as fears over the coronavirus outbreak and overly valued stocks have risen, investors have bought bonds. In response, the U.S. government has reissued the 20-Year Treasury — a sign of pursuing increasing investment.
The coronavirus storm has led to the buying of safe-haven assets. During times of economic concern, investors pursue such assets for stability. However, the recent decline in gold, silver, and Bitcoin has left analysts somewhat surprised.
Some see these asset classes, though safe havens, as less stable than bonds because of a lack of government support. Without governmental backing, even the most stable assets are risky. When the market feels most fearful, the lowest possible risk is the appetite.
Assuming this is the case, as the market continues stabilizing after the epidemic fears, these assets should respond. Bitcoin, gold, and others should see increased interest in the near term.