While government actions led to a strong rally in risk markets, U.S. Treasury rates remained generally flat month-over-month. Although there was some notable intra-day volatility, and new lows were reached for several points on the yield curve mid-month, the 2-year and 10-year Treasury yields declined only 2 and 9 basis points (bps), respectively, since March. The Fed has reportedly purchased some $1.4 trillion of bonds since mid-March.
There were a plethora of negative economic releases: -4.8% GDP (Q over Q, ann.), -7.6% personal consumption, and nearly 23 million new jobless claims. Markets largely looked past the data, instead attempting to estimate the value of governmental responses and the timing of reopening of segments of the economy. The market for WTI crude oil plummeted on the lack of demand and potential storage capacity shortages. The dollar remained strong in light of concerns over the strength of the recovery in Europe and elsewhere.
Bond investors must balance the issuance of record amounts of debt versus the Fed’s aggressive bond purchasing. With the short-end of the yield curve firmly anchored, there is potential for curve steepening further out. Treasury is scheduled to revive the issuance of 20-year notes.