Bond Investors Eye Iowa Caucuses -- Update

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02/04/2020 | 11:14 pm

By Julia-Ambra Verlaine

The yield on the benchmark 10-year Treasury posted its largest one-day gain in nearly two months, lifted by economic stimulus in China, signs of recovery in manufacturing and the stalled release of results from the Iowa Democratic caucuses.

The 10-year yield, which rises when bond prices fall, climbed to 1.603%, according to Tradeweb, from 1.520% Monday.

The move ended a series of declines for the yield, a key barometer for financial markets which helps set borrowing costs throughout the economy, after worries the coronavirus would spark a slowdown dragged yields lower in recent sessions.

Traders named several factors pushing yields higher. Fresh data in recent days has shown global manufacturing steadying, and the Chinese central bank has moved to inject liquidity into its banking system this week, allaying some of the most pressing concerns about global growth, investors said. Even the delayed release of results from the Democratic caucuses in Iowa helped boost yields, because it diminishes the odds of President Donald Trump losing the election and suggests current policy could continue, several investors said.

Investors are closely watching the Iowa results, because policy differences between the candidates could spark swings in everything from stocks to shares of oil companies ahead of a general election now just nine months away.

In a survey of 645 investors conducted by Morgan Stanley -- with results published in November -- 9 out of 10 said they expect the U.S. elections to have a significant impact on their market outlook.

"If the elections shapes up to be a closely contested affair, investors with deeply held convictions should pay close attention to surprising shifts in sentiment, especially if they run counter to the prevailing consensus at the time," said Morgan Stanley research analysts in a client note.

Investors had spent much of recent sessions worrying about the potential drag the coronavirus could have on global growth, with airlines halting flights and companies such as Apple Inc. temporarily closing stores and offices in China. The gambling center of Macau, which pulled in more than five times the revenue of Las Vegas in 2018, said Tuesday it planned to shut its casinos for 15 days.

Analysts and traders said even with stocks rebounding Tuesday, much of the selling in safer assets such as government debt has come during periods of reduced trading, and researchers at banks are advising clients to hold on to instruments allowing them to hedge against future uncertainty over the severity and duration of the epidemic.

"Global stocks are groping for the 'worst is past' signal, but today seems too soon to make that call, based on the virus's growth path this week," said Jim Vogel, head of government debt strategy at FHN Financial, in a note to clients.

Write to Julia-Ambra Verlaine at

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