• As equity markets raced ahead through much of the past 12-plus months, U.S. Treasury yields flashed signs of caution. For example, the 10-year U.S. Treasury yield, often viewed as a bellwether for economic growth, saw a peak-to-trough decline of approximately 130 bps in 2019.
  • The rapid equity sell-off of the past several weeks has also served to exaggerate last year’s activity within the Treasury markets. The 10-year yield reached historic lows on an almost daily basis earlier this month before settling into a 0.5%–0.8% range this week.
  • As the chart shows, yields have quickly compressed across the entire U.S. Treasury yield curve. Short-term rates, where Fed policy typically exerts the most influence, have moved lower as investors increasingly expect the Fed to bring rates back to zero at, or before, its March 17–18 meeting.
  • Meanwhile, longer-term rates have moved lower as the uncertainty surrounding the economic impact COVID-19 may have on the U.S. economy begins to look more certain, in the form of a protracted economic slowdown.
  • This environment has the potential to lead to ongoing volatility across equity and fixed income markets, as we have witnessed during the past several weeks, as well as continued challenges for income-oriented investors as rates remain lower-than-ever for longer.

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