By Tom Burnett CFA
As the U.S. stock markets opened on Monday, February 24, 2020, global interest rates continued to decline sharply. Rates on the ten-year government bonds are now negative is six major countries (France, Germany, Switzerland, Japan, Netherlands, and Sweden). Equity markets are selling off on fears that the coronavirus outbreak will continue to spread and to put pressure on global economic trade and growth. In a flight to ‘fear protection’, gold prices have risen 9% this year to the highest levels since 2013.
U.S. Treasury bond yields have declined dramatically in 2020. For example, the 30-Year bond is now trading at a yield of 1.81%, down from 2.39% at the end of 2019. The 1.81% yield is the lowest ever recorded for the 30-year bond. The 10-Year yield is now at 1.37%, down from 1.92% at the end of 2019. By comparison, the dividend yield on the S/P 500 Index is 1.9%.
Investors see no immediate threat of inflation and are clearly bothered by fears of a global economic slowdown. These factors have now combined to push global interest rates down to record low levels. All eyes will now be focused on the release of U. S. GDP data for the final quarter of 2019. The GDP report is scheduled to be released on Thursday, February 27.
Tom Burnett is the Director of Research