By Ross Kerber
BOSTON, March 18 (Reuters) – U.S. Treasury yields swung widely in a volatile session on Wednesday as investors scrambled to make trades in an illiquid market, moving a closely watched part of the yield curve to its steepest in two years.
The benchmark 10-year US10YT=RR yield was up 18.1 basis points at 1.1767% after trading above 1.2% and below 1% at several points during the day.
The price decline in Treasuries, which move in the opposite direction from yields and are usually considered a safe haven, came as investors also continued to sell other assets like stocks.
The yield curve spread between the two- and 10-year Treasury notes was at 63 basis points, about 7 basis points wider than Tuesday’s close and at its biggest gap since February 2018.
Market participants said the wide range of yields during the day reflected reduced trading volumes. That made it harder for investors to price in an evolving government response to the coronavirus epidemic as they updated economic models far from their offices.
“You have a lot of people working from home, you’re not being as efficient and you have a lot less liquidity in the market,” said Mary Ann Hurley, vice president for fixed income trading at D.A. Davidson in Seattle.
“These are far from normal circumstances,” she said.
FHN Financial interest rate strategist Jim Vogel said lower trading volumes this month have also reduced the usefulness of bond market signals for policymakers and investors.
“At every given two-hour stretch there’s not enough flow to be able to say precisely what Treasury yields are indicating other than the last five or six trades. That’s a form of illiquidity,” he said.
Currently, “it’s hard to say what the Treasury market is really concluding, other than reacting to headlines,” Vogel said.
The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 7.3 basis points at 0.5337% in afternoon trading.
A late-afternoon rise in yields occurred even as U.S. stocks deepened their selloff. The U.S. Treasury and Internal Revenue Service said they would allow U.S. individuals and corporations to defer making certain tax payments until July 15.
Cases of the respiratory illness have been reported in all 50 U.S. states and millions of Americans are staying home from work. The Trump administration on Wednesday asked Congress to approve $500 billion in cash payments to taxpayers and $50 billion in secured loans to U.S. airlines to address the financial impact of the coronavirus.
The Fed on Tuesday said it would reopen the so-called Commercial Paper Funding Facility to underwrite the short-term loans companies often use to fund operations, a key financial market backstop first set up 2007 to 2009.
It also extended its reach as the economy’s lender of last resort to the two dozen Wall Street primary dealers, letting them pledge municipal bonds, corporate debt and equity securities as collateral for 90-day Fed loans to keep credit flowing.
The New York Fed said it will make up to $1 trillion a day available for loans in the repurchase agreement (repo) market for the remainder of this week.
On Wednesday morning, the New York Fed said it accepted $85.8 billion in overnight repo bids from primary dealers. In another operation later in the day, it accepted a further $13.2 billion in overnight repo bids.
March 18 Wednesday 3:33PM New York / 1933 GMT
Current Yield %
Net Change (bps)
Three-month bills US3MT=RR
Six-month bills US6MT=RR
Two-year note US2YT=RR
Three-year note US3YT=RR
Five-year note US5YT=RR
Seven-year note US7YT=RR
10-year note US10YT=RR
30-year bond US30YT=RR
DOLLAR SWAP SPREADS
Net Change (bps)
U.S. 2-year dollar swap spread
U.S. 3-year dollar swap spread
U.S. 5-year dollar swap spread
U.S. 10-year dollar swap spread
U.S. 30-year dollar swap spread
(Reporting by Ross Kerber Editing by Alden Bentley and Cynthia Osterman)
((firstname.lastname@example.org; (617) 856 4341; Reuters Messaging: Ross.Kerber.Reuters.com@Reuters.net))
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.