Benchmark Treasury yields lowest since December 2017

Benchmark 10-year Treasury yields fell to their lowest levels since December 2017 on Monday while the yield curve between three-month bills and 10-year notes inverted further as investors evaluated last week's dovish pivot by the Federal Reserve. The US central bank on Wednesday stunned investors by abandoning projections for any interest rate hikes this year and saying it would halt the steady decline of its balance sheet in September.
The yield curve inverted on Friday after disappointing manufacturing data in the United States and Germany further raised concerns about the slowing global economy. On Monday, "it is a follow through trade from last week," said Ian Lyngen, head of US rates strategy at BMO Capital Markets in New York. Weaker stock markets and concerns about weakening international growth supported the trade. That said, "it is a disproportionately large rally given what we are seeing going on in risk assets," Lyngen added.
It also comes despite an unexpected improvement in German business morale in March, which briefly helped to lift yields off their lows. Ten-year notes gained 18/32 in price to yield 2.393 percent, down from 2.455 percent on Friday. The yield curve between three-month notes and 10-year yields was inverted by around five basis points. The inversion, if it persists, is seen as a reliable indicator that a recession is likely in one to two years.
Typically, however, the curve will chop around for some time before confirming an economic downturn. Unprecedented central bank stimulus may have also altered the curve dynamics, making an inversion a less clear signal of economic weakness than in the past. "We're examining yield curve relationships in an environment where the Fed still has enormous control over the long end of the curve, given how much they own on their balance sheet, and we're dealing with a very accommodative global policy regime as well," said Tom Simons, a money market economist at Jefferies in New York.
Chicago Federal Reserve Bank President Charles Evans said on Monday it was understandable for markets to be nervous when the yield curve flattened, though he was still confident about the US economic growth outlook. The Treasury Department will sell $113 billion in coupon-bearing supply this week, including $40 billion in two-year notes on Tuesday, $41 billion in five-year notes on Wednesday and $32 billion in seven-year notes on Thursday.