Investors are snapping up US government bonds, a sign they’re worried the economy is slowing and increasingly expect the central bank to take action to keep it from stalling.
Ten-year US Treasury yields fell to about 2.08% yesterday, the lowest level since September 2017. It’s a reversal from much of last year when yields were climbing, boosted by tax cuts that were expected to power the economy forward, driving up inflation and wages. Treasury yields, which move inversely to bond prices, tend to increase when investors are confident about the economy, spurring them to rotate out of government securities and buy riskier assets instead.
Confidence has ebbed lately as the Trump administration wages a trade war with China (and recently threatened a new one with Mexico) and as the thrust from tax cuts peters out. Last month, US employers added just 75,000 jobs, well below expectations of 185,000. Revisions erased 75,000 jobs off estimates for the previous two months, and monthly wage growth came in below expectations.
Interest rates are declining around the world, a sign economic growth concerns are widespread. Yields on 10-year Japanese and German bonds were below zero last week. The stock of government debt with negative yields has risen to $10 trillion or more, up from $7 trillion two years ago, according to some estimates (paywall).
Investors are betting that the Federal Reserve will cut rates soon. Between December 2015 and December 2018, policymakers raised rates nine times, and the Fed’s benchmark overnight rate is currently set at a range of 2.25%-2.50%. Last week, Fed chairman Jerome Powell said the central bank is watching the trade tensions closely. “As always, we will act as appropriate to sustain the expansion,” he said.
—With reporting assistance from Eshe Nelson