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Is There A Shortage Of Bonds?

Michael Gray profile picture
Michael Gray


  • Long-term US Treasury bonds have rallied 134 basis points over the past 7 weeks as the coronavirus contagion grows.
  • For the first time ever, the entire US Treasury yield curve is at sub-1% yields.
  • Both investment grade and high yield corporate bonds have lagged as recession fears increase.

Hand sanitizer is not the only commodity in short supply due to the outbreak of the coronavirus.

Since late January, when the first case of the virus was reported in the U.S., investors have not been able to buy enough long bonds. Interest rates on 30-year bonds have fallen by 134 basis points in seven short weeks. On Friday alone, the 30-year US Treasury bond rallied 25 basis points, the largest one-day drop in 12 years. Today, bonds broke that record, rallying another 34 basis points. That’s a 59-basis point drop in two days! Long rates are now at an all-time low of 0.98%.

Interest rates across the yield curve have fallen by similar amounts. Yields are now at the unheard of level of under 1% for the entire US Treasury curve.

The demand for bonds is the result of a flight to safety, as investors fear that the expanding virus will dramatically impact economic growth. The robust jobs report of Friday, with unemployment ticking down again to 3.5%, tying the 51-year low, is viewed as old news. Instead, expectations of a recession are rising with each new report of virus contagion.

The Fed expressed its concern by cutting the Fed Funds target rate by 50 basis points on Wednesday, March 3rd. This was the first inter-meeting emergency rate cut by the Fed since the financial crisis of 2008.

The upcoming Treasury auctions of $78 billion in new coupon securities this week ($38 billion 3 years, $24 billion 10 years and $16 billion 30 years) will be but a small relief to satiate market demand. New record low auction rates are expected at each maturity.

While demand for US government bonds has been strong, the same cannot be said for all segments of the fixed-income markets. Corporate debt spreads have spiked. The Markit

This article was written by

Michael Gray profile picture
I've devoted my career to following the capital markets and managing fixed income assets.  I founded Gray Capital Management LLC and before that was Head of Taxable Fixed Income at Fidelity Investments.  I have an MBA in Finance from Wharton and a BA in Economics from Union College.

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.

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Comments (1)

NV_GARY profile picture
You lost me here: "Long-term US Treasury bonds have rallied 134 basis points over the past 7 weeks "
The price rallied, the yield cratered.
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