Entering text into the input field will update the search result below

U.S. Government 10-Year Note Drops Below 1%: What It Says About The Economy

John M. Mason profile picture
John M. Mason


  • The yield on the 10-year US Treasury note dropped below 1.00 percent for the first time in history.
  • The Federal Reserve lowered its policy rate of interest, but investors appeared to interpret this move as economic conditions being worse than had been thought.
  • Consequently, even more money flowed into the government bond market as the US stock market took another major hit indicating that expectations have become more dismal.

At ten o’clock Tuesday morning, March 3, 2020, the Federal Reserve announced it was cutting its policy rate of interest by 50 basis points.

Within a very short time, the yield on the 10-year US Government note dropped below 1.00 percent, a new historical low.

On Monday, all three major US stock indexes registered substantial gains after five days of large declines.

The reason for yesterday’s gains, according to many analysts, was that investors expected that the Federal Reserve and other central banks would soon cut their policy rates of interest in an effort to stem falling stock markets around the world that were reacting to the spread of the coronavirus and the global economic slowdown it was causing.

Well, on Tuesday, the Federal Reserve acted and the stock market dropped!

Whoa! It wasn’t supposed to act that way!


The question has to be, what changed between Monday and Tuesday?

Let’s take a guess. My guess is that investors believed these moves would not come immediately. Because there had been a lot of talk that the Federal Reserve and other central banks would lower interest rates, the feeling was that they would not act immediately.

Thus, the move by the Federal Reserve surprised investors. Things must be worse than was thought.

Investors concluded that if the Federal Reserve felt it had to move as fast as it did, that things must be a lot worse than the investors had thought they were.

That is, the Fed’s move broke the market’s expectations about when a Fed move might be made. The investors, therefore, had to react.

US stocks declined on Tuesday, and not by just a little bit.


Up to now, the projections for the US economy presented by the Federal Reserve System

This article was written by

John M. Mason profile picture
John M. Mason writes on current monetary and financial events. He is the founder and CEO of New Finance, LLC. Dr. Mason has been President and CEO of two publicly traded financial institutions and the executive vice president and CFO of a third. He has also served as a special assistant to the secretary of the Department of Housing and Urban Development in Washington, D. C. and as a senior economist within the Federal Reserve System. He formerly was on the faculty of the Finance Department, Wharton School, the University of Pennsylvania and was a professor at Penn State University and taught in both the Management Division and the Engineering Division. Dr. Mason has served on the boards of venture capital funds and other private equity funds. He has worked with young entrepreneurs, especially within the urban environment, starting or running companies primarily connected with Information Technology.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (18)

CapeHornInvesting profile picture
Fortunately, all this technical BS really has little effect on the economy. Fed manipulations, non-China supply chains, lack of interest in STEM, move into and out of bonds.

Even investor jitters and stock market corrections are small considerations.

Economists should know that the one thing that can push an economy beyond the product-possibilities curve is technology. Period.

Technology has been quietly working in the background to undermine the cost of energy.

The implementation of renewables and efficient infrastructure are significantly undermining the price of fossil fuels. This creates cheap fossil fuel energy as well as cheap renewable energy.

That is what is creating the underlying strength of the current economy. Cheaper energy pushes the product-possibilities curve outward, increasing productivity, lowering prices, and increasing wealth and prosperity. The only thing holding it back is restriction of trade. Trade makes everyone better off.

There is always a reason for a true recession. 2008-2009 was a temporary dip caused by criminal behavior in the banking industry. 2000 - 2002 was a temporary dip caused by over-speculation in the technology sector.

The last real recession was in the 1980's when the arab countries placed an embargo on oil, driving the cost of energy sky-high. Then we saw real, grinding stagflation, joblessness, hopelessness, and long-term stock market pain.

Without a driver, there is no argument in favor of a recession. I see no driver. Nova corona virus will have less of an effect than the 2008 mortgage backed securities debacle, and will be temporary.
jack kreg profile picture
It is pretty impressive to see 10 year bond rates falling from 2.7% to current under 1% in less than 12 months!
Diesel profile picture
It's even more impressive to see mortgage rates not drop at all while the 10 year yield dropped from 2.7% to 1%.
jack kreg profile picture
supply side slow down in China is very bullish for USA, as world builds new supply chains outside of China, like Vietnam and India! Diversification and global competition with China is very bullish for USA!
@jack kreg

If Chinese economy tanks, so will GM, Tesla, Apple, Starbucks, and all chip manufacturers. It will also bring down airlines, especially UAL, flying into China as well as cruise industry, which has become heavily reliant on Chinese customers. Hainan Airlines, a large Chinese carrier, with fleet of 300 planes has declared bankruptcy. Other Chinese airlines will probably defer delivery or cancel orders for new planes, including Boeing aircraft.
jack kreg profile picture
I've been an engineer in So Cal and I have never seen the STEM job market so tight. Wages are rising at 5 and 10% annual rates. There are 2 or 3 times more job opportunities than people looking for jobs. If you want to hire a solid engineer, you have to buy him/her away from a really solid job, this requires a massive upside to wages.
the US job market is limiting growth in GDP, this is the fault of massive failure of our union run public school system, its been indoctrinating propaganda for decades, instead of teaching math, science and technology, hence decimating US middle class.
What associate's or master's degree would you recommend a job switcher look into?
Without a doubt an engineering degree. Any kind (ME, EE, Chem, etc. is a great foundation. Then you can move onto a Masters degree in any other discipline / field you like. An Engineering degree opens a lot of doors.
American students are still getting good test scores in math and science, but they do not want to major in engineering, sciences or IT. American students all want to become hedge fund managers or financial advisers.
jack kreg profile picture
Central banks do not set 10 year rates!
@John M. Mason Due to this large emergency rate cut, I agree that investors now suspect some bad economic news which the Fed is now aware of will soon be released, but I disagree a bit on your analysis of the fall in the interest rates on US government paper. I no longer think the interest rates on US government paper has much to do with inflation expectations, and especially those official government inflation figures which everyone knows are not reflective of what most people see in their lives. I think it has way more to do with US rates still being higher than most countries, the ridiculous amount of cash some individuals and institutions now have on their hands (created by easy money policies everywhere), the US position still seen as a safe haven (though not as safe as formerly thought), and so money is just pouring in. And who in their right mind anticipates holding a 10-year note paying 1% to maturity; bonds have become trading instruments which they anticipate unloading on someone else if/when rates go even lower.
jack kreg profile picture
JCC, absolutely, its all about global rates at or near zero with global growth in GDP at or near zero. Foreign cash is pouring into US bonds!
The biggest money grab in history over the last ten years and they couldn't fix the economy.

The fed is forcing everyone to take risks they are not comfortable with. especially the retired. And 50% of the idiots in congress want to cut retirement security by taking away SS. What are people supposed to do in retirement when the Fed is aggressively cutting rates? Put all the retirement money in the risky stock market? Or buy an annuity at very low interest rates?

What a bunch of dumbos.
it's only dumb if it's not part of the plan
Abel+ profile picture
Flemming v. Nestor, 363 U.S. 603 (1960)
The contributions are that, gifts. No worker has rights to what they contributed, as it is government property. In other words, they can do what they want with it. The SSN card is government property, it is a fictional entity, just like a corporation, or an LLC. Who's responsible for babysitting the entity, you @ding dong, and the entity's name is called DING DONG, which happens to have the same letters but is NOT you. How about taxes? Well, yes, they are gifts ;)
fabskxha profile picture
Flight to safety. Quick, someone hand our national credit card to Bernie--we need to flight deflation!
Chimpster profile picture
I have seen mention twice today that the supply side problems could actually cause inflation to pick up. Now that would really throw a wrench into the works.
fabskxha profile picture
The current fear is insufficient demand. We would need a serious supply shock and a rise in unemploymen before stagflation becomes a real concern. This is highly unlikely given that China will do anything for the game to continue as before, meaning, exporting deflation at all costs.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.