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Bond Report: Treasury yields post their biggest one-day decline in well over a year amid investor worries about COVID-19 variant

Treasury yields fell sharply in thin trading on Black Friday, posting their biggest one-day declines in well over a year, as investors piled into government debt in a flight to safety sparked by fears of a new variant of the coronavirus that causes COVID-19.

Fixed-income markets closed early at 2 p.m. Eastern Time, an hour earlier than usual, after being closed on Thursday for the Thanksgiving holiday in the U.S.

What are yields doing?

The 10-year Treasury note yield
TMUBMUSD10Y,
1.479%

fell 16 basis points to 1.484%, down from 1.644% on Wednesday at 3 p.m. ET.

The 2-year Treasury note
TMUBMUSD02Y,
0.503%

yield dropped 12.6 basis points to 0.518%, down from 0.644% late Wednesday.

The 30-year Treasury bond rate
TMUBMUSD30Y,
1.829%

was at 1.830%, down 13.9 basis points from 1.969% on Wednesday.

It was the biggest daily drop for the 2- and 10-year rates since March 2020, and largest for the 30-year since April of last year. For the week, the 2-year rose 1.5 basis points, the 10-year was down 5.1 basis points, and the 30-year rate declined 7.6 basis points from last Friday’s 3 p.m. ET finish.

What’s driving the market?

Stocks, oil and bond yields all plunged on Friday amid fears that the latest heavily-mutated strain of COVID-19, first identified in Botswana, may undermine the global economic recovery as a slew of nations rushed to halt air travel from southern Africa.

The U.K. and European Union immediately announced bans on travelers from South Africa and other countries in southern Africa, while others, including Japan, said travelers would be forced to quarantine in government-run accommodation for 10 days to allow for regular testing, as the Associated Press reported. By the afternoon, the U.S. announced its own travel restrictions, starting on Monday.

The strain — known as B.1.1.529 — was designated as a “variant of concern” by the World Health Organization on Friday.

Read: WHO warns world leaders against knee-jerk reaction to coronavirus variant from South Africa as U.K. and EU impose travel bans

Friday’s COVID fears dragged U.S. stock indexes substantially lower, with the Dow Jones Industrial Average
DJIA,
-2.53%

plunging 905 points and posting its biggest one-day point decline since Oct. 28, 2020.

The move lower for Treasury yields undid this week’s upward trend in yields, prompted by expectations that Federal Reserve Chairman Jerome Powell, who was re-nominated for a second term by President Joe Biden on Monday, would accelerate the pace of the Fed’s reduction of monthly bond purchases to help curb a surge in inflation.

In an interview with Yahoo Finance published on Wednesday, San Francisco Fed President Mary Daly said that a case can be made for speeding up the central bank’s tapering in December.

What analysts are saying

Neil Shearing, group chief economist at Capital Economics on Friday said that the global economic backdrop is very different as the new variant emerges, compared with the emergence of delta. “Supply chains are already stretched. A virus-related surge in goods spending, or port closures, would exacerbate existing supply strains and add upward pressure to goods inflation,” he wrote in a Friday note. “Likewise, a new, more dangerous, virus wave could cause some workers to temporarily exit the workforce, and deter others from returning, making current labor shortages worse.”

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