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Benchmark yield hits 5-month low, signals dim view of…

By Kate Duguid

NEW YORK, Aug 4 – The benchmark 10-year Treasury yield hit its lowest since March 9 on Tuesday, indicating safe-haven demand from bond investors wary of a slow U.S. economic recovery.

The 10-year yield hit a low of 0.513% in North American morning trade, the second-lowest yield ever recorded at that maturity. The lowest was hit on March 9 as the coronavirus pandemic was gathering steam in the United States, prior to the Federal Reserve’s intervention in financial markets.

The moves in the bond market suggest a different story than that being told in the equity market; the S&P 500 index has nearly recovered to pre-crisis highs.

“The bond and stock markets seem to be looking at the data and expecting different outcomes, at least for now,” said Kevin Giddis, chief fixed income strategist at Raymond James.

The bond market, Giddis said, remains skeptical about the prospects of a rebound in gross domestic product in the third quarter. The U.S. economy contracted at a rate of 32.9% in the second quarter, the worst hit since the Great Depression.

“While the bond market expected the big drop in second-quarter GDP, bond traders are becoming less optimistic about the 18%-20% snapback in third-quarter GDP. There is a concern about how much the stimulus package will help the economy, and its cost over time,” said Giddis.

Congressional negotiations over a new stimulus bill are ongoing. Top White House officials and Democratic leaders were trying to narrow gaping differences over a fifth major coronavirus relief bill. The two sides have reported some progress in recent days but remain far apart on a range of issues, including unemployment benefits for workers, liability protections for businesses and funding for schools, state and local governments.

Hopes the bill will be passed are contributing to the run-up in U.S. stocks, said Giddis. Some recent good U.S. data also helped bolster the market. On Monday an Institute for Supply Management report showed U.S. manufacturing activity rose to a 1-1/2 year high in July.

The 10-year yield was last down 3.8 basis points on the day at 0.52%5. At the long end of the curve, the 30-year yield was down 5.1 basis points to 1.194%. The short end was little moved, with the two-year last down 0.2 basis point at 0.113%. (Reporting by Kate Duguid; Editing by Dan Grebler)

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