Markets

10-year Treasury yield hits new all-time low of 0.318% amid historic flight to bonds

The benchmark 10-year Treasury yield resumed its historic slide on Monday as investors continued to punish risk assets like stocks in favor of the safety of bonds between an all-out oil price war and contagion fears surrounding the coronavirus.

The yield on the benchmark U.S. 10-year Treasury briefly touched an all-time low of 0.318% in overnight trading, adding another 30 basis points to an unprecedented fall in the key interest rate. That rate was above 1.5% as recently as mid-February.

The 10-year yield, in particular, holds outsized importance in the U.S. economy for its use as a benchmark for mortgage rates and auto loans. The 30-year Treasury yield also hit a record low of 0.702%, breaching the 1% threshold for the first time in history. Bond yields fall as their prices rise.

The yield on the benchmark 10-year Treasury note was last seen at 0.573%. The yield on the 30-year Treasury bond was at 1.024%. 

The fast-spreading coronavirus kept investors on edge for weeks as the outbreak has the potential to disrupt global supply chains and tip the economy into a recession. As of Sunday, global cases of the infection have climbed to more than 109,000 with at least 3,801 deaths around the world.

Adding to the stress is a shocking all-out oil price war after OPEC talks collapsed last week. Saudi Arabia on Saturday slashed official crude selling prices for April, in a sudden U-turn from previous attempts to support the oil market as the coronavirus hammers global demand.

Last week, OPEC recommended additional production cuts of 1.5 million barrels per day starting in April to help support prices, but cartel ally Russia rejected the additional cuts and sparked the sell-off. Futures contracts tied to WTI crude were last seen down 22.3% around $32 a barrel.

Stock futures tumbled in overnight trading, with the Dow Jones Industrial Average set to open more than 1,300 points lower. The Dow and the S&P 500 both fell into correction territory as worries over the coronavirus deepened.

"There has been an extreme 'risk-off' move in the financial markets due to the fear surrounding the COVID-19 virus and the most recent Saudi oil decision," Tony Dwyer, Canaccord Genuity' market Strategist, said in a note on Sunday. Dwyer expects yields to rebound sharply like they did during the financial crisis.

"There was a sharp spike in rates following that extreme in 2008 and we expect something similar as the global monetary and fiscal stimulus is rolled out," Dwyer said.

The Federal Reserve slashed interest rates by half a percentage point last week in between its policy meetings, the first such emergency cut since the financial crisis. The market has already priced in more aggressive easing — a 75 basis point reduction — at the Fed's March 18 meeting, according to the CME FedWatch tool.

While the coronavirus poses a new threat to the global economy, the bond market has been flashing various warning signs about the economy for a while now. 

The yield curve, the mathematical line that plots interest rates across maturity dates, began to invert in late 2018 in a sign that often (but not always) precedes recessions. The spread between the 10-year Treasury yield and the 3-month Treasury yield first inverted in March 2019 while the spread between the 10-year rate and the 2-year rate inverted last summer.

—CNBC's Michael Bloom contributed reporting.