A tepid jobs report fueled investors' belief that the Fed will cut rates, sending stocks higher and the 10-year Treasury yield down near 2%
By Daniel Kruger Updated June 7, 2019 4:02 p.m. ET The yield on benchmark U.S. government bonds hit new 2019 lows near 2% on Friday, a sign investors believe a slowing economy will spur the Federal Reserve to cut interest rates.
Few saw this coming late last year, as the 10-year yield soared to a multiyear high above 3%. Many had bet Trump administration policies like tax cuts and regulatory rollbacks would shake the U.S. out of its postcrisis torpor, accelerating growth and inflation and spurring regular rate increases in 2019.
Falling bond yields and low interest rates can make stocks more attractive to investors looking to beat the lowered returns offered by relative safe assets, like Treasurys. But a rapid decline in yields can also worry investors, since low yields typically suggest reduced confidence in the economic outlook.
The worries span the globe. The yield on 10-year German government debt Friday declined to record lows below negative 0.2%. Japanese government bonds of the same maturity traded below negative 0.1%. Friday’s jobs report also signaled wage increases aren’t creating pressure for increasing prices. A measure of investors’ expectations for average annual inflation over the next 10 years, known as the 10-year break-even rate, has fallen to about 1.7% from about 2% in late April. Muted inflation tends to lift the value of bonds by preserving the purchasing power of their fixed payments.
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