March 23, 2020 / 3:09 PM / 7 days ago

TREASURIES-Yields fall as investors stay cautious after Fed stimulus

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By Kate Duguid

NEW YORK, March 23 (Reuters) - U.S. Treasury yields were lower on Monday as investors worried about the economic crisis underway, even after the Federal Reserve announced enormous stimulus measures to combat the blow dealt to the U.S. economy by the coronavirus pandemic.

The U.S. central bank on Monday said it would begin backstopping an unprecedented range of credit for households, small businesses and major employers in an effort to offset “severe disruptions” to the economy caused by the coronarvirus outbreak.

But investors remained despite the announcement and appetite for high-quality assets like Treasury debt remained high. The benchmark 10-year yield was last down 20.5 basis points at 0.733%, with the two-year yield last down 9.8 basis points to 0.268%. The long bond was down 18.4 basis points to 1.378%.

At the long end of the curve, yields remained well above the all-time lows plumbed on March 9. The two-year yield, which is particularly sensitive to changes in monetary policy, was approaching but had not yet hit its lowest since October 2014.

“At the end of the day, the Fed’s injections announced Monday are designed to backstop liquidity in market functioning but cannot avert the economic calamity that’s already underway,” said Jon Hill, U.S. rates strategist at BMO Capital Markets.

“It really is just trying to make sure markets work and companies and municipalities can access markets when needed, but that doesn’t mean layoffs aren’t coming, it doesn’t mean that a recession is not coming. And if you’re the equity market, it’s really hard to rally even on that news.”

A Reuters poll of economists estimated initial jobless claims rose an astounding 1 million last week, and some believe the number could be higher.

Nearly a third of the U.S. population is now subject to rules shuttering non-essential businesses and discouraging people from leaving their homes, to help slow the spread of the virus. Hundreds of thousands of people have already filed for unemployment insurance in California alone, the state’s governor said at the weekend, and many analysts are projecting declines in economic output next quarter that are far worse than the steepest drop during the Great Recession.

Stocks initially rose, then fell after the Fed announcement. (Reporting by Kate Duguid Editing by Chizu Nomiyama and Tom Brown)

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