Treasury yields plunged on Monday after the Federal Reserve pledged asset purchases with no limit to support the markets amid the coronavirus pandemic.
The yield on the benchmark 10-year Treasury note dropped 25 basis points to 0.692% following the Fed announcement. The rate last traded at 0.82%. The yield on the 30-year Treasury bond fell 20 basis points to 1.34%. Bond yields fall as prices rise.
The Fed said Monday it will continue its asset purchasing program including Treasurys and commercial mortgage-back securities "in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy."
"Today's announcement will go a long way to reassuring investors the Fed has their backs and will stop the growing credit crisis in its tracks," Chris Rupkey, MUFG's chief financial economist, said in a note. "Yield spreads should narrow and the stock market should rest easier now that the Federal Reserve is giving it all it's got."
The credit markets have been in disarray with corporate bond spreads blowing out and default rates expected to rise. The mortgage markets have also seen record selling amid the meltdown in credits.
Commercial paper and high yield spreads have risen to new cycle wides and are in a zone not seen since the financial crisis, according to Michael Darda, chief economist and market strategist at MKM Partners.
Last week, the European Central Bank and Bank of England also unveiled substantial stimulus packages in a bid to prop up stalling economies.
On the fiscal side, however, partisan battles in the U.S. Senate stalled a proposed $1 trillion relief package on Sunday, with Democrats requesting greater funding for medical care and local efforts to curtail the outbreak.
Treasury Secretary Steven Mnuchin told CNBC Monday that Congress is "very close" to reaching an agreement on the stimulus plan, adding it needs to get done "today."
As of Sunday, states have ordered nearly one in three Americans to stay at home, according to a Reuters tally, as Ohio, Louisiana and Delaware became the latest to enact tight restrictions. Sunday saw confirmed cases nationwide rise by 7,800, the largest one-day spike since the pandemic arrived stateside.