U.S. Treasury yields fall as stocks sink on stimulus uncertainty

CHICAGO – U.S. Treasuries rebounded on Wednesday as stocks dropped over uncertainty on how the White House plans to combat the impact of the coronavirus outbreak on the economy.

The 10-year note yield was last at 0.711%, down from 0.752% at Tuesday’s close.

“(Treasuries) are coming back today simply as a reaction to the weakness in the stock market, which had such a good day yesterday,” said Lou Brien, a strategist at DRW Trading in Chicago. “The continued uncertainty always will give a bid to the Treasury market, and if there’s anything we’ve got in spades it’s uncertainty right now.”

Expectations of a major stimulus plan from the Trump administration boosted Wall Street on Tuesday, following Monday’s sell-off as a plunge in oil prices compounded fears of a global recession.

President Donald Trump and members of his economic team on Tuesday met with Republicans in the U.S. Senate and discussed a payroll tax cut, but no concrete measures have been announced.

Meanwhile, some investors are growing concerned about liquidity disruptions in the Treasury market given recent large shifts in yields.

“It’s conditional. If you get a couple days where things calm down because there’s no fresh news and we don’t get big swings, then the volume kind of comes back and the bids and offers tighten up,” Brien said.

Yields on 10-year Treasury notes were little changed after the U.S. Labor Department reported its consumer price index unexpectedly increased 0.1% last month, matching January’s gain, as rising food and accommodation costs offset cheaper gasoline.

Thirty-year Treasury yields were at 1.211%, down from 1.233% on Tuesday.

The Treasury will sell $24 billion of 10-year notes on Wednesday, following a weak $38 billion auction of three-year notes on Tuesday.

After boosting its limit on daily cash injections earlier this week, the New York Federal Reserve on Wednesday accepted all of the $132.38 billion in bids from primary dealers at an overnight repurchase agreement (repo) operation.

It was the largest amount of repo loans since the liquidity operations began in September.

(By Karen Pierog in Chicago and Karen Brettell in New York; Editing by Paul Simao)