[Asia Economy New York=Correspondent Baek Jong-min] The US Treasury yield has fallen into negative territory for the first time in five years. Although this phenomenon is limited to ultra-short-term bonds, it is seen as reflecting the market's anxiety and preference for safe assets.
According to US CNBC on the 25th (local time), the 1-month US Treasury yield in the New York bond market recorded -0.041% during the day. The 3-month Treasury yield also showed -0.03%. This is the first time in five years since 2015 that these Treasury yields have turned negative.
The 1-month US Treasury yield has steadily declined from the mid-2% range at the beginning of last year. Recently, the slope of the decline has steepened further due to the preference for safe assets.
A decline in bond yields means a rise in bond prices. Negative yields mean that when buying bonds, investors do not receive interest but rather have to pay a premium.
This phenomenon directly reveals market anxiety. Until last week, the sentiment that only the dollar could be trusted led to a sell-off of safe assets such as gold and long-term Treasury bonds. However, this week, after the Federal Reserve's unlimited quantitative easing announcement, funds began to flow into short-term US Treasuries, which are highly liquid like cash.
The decline in ultra-short-term Treasury yields contrasts with the increased volatility of long-term 10-year bonds. The 10-year yield fell to a record low of around 0.3% earlier this month but recently rose to the 0.8% range due to cash preference and Treasury sell-offs.
The US investment magazine Barron's commented, "The fact that ultra-short-term US Treasury yields have turned negative suggests that the cash preference caused by COVID-19 has not yet been resolved." The dollar index, which indicates the value of the dollar, fell to 100.94 on the day.
However, even though ultra-short-term Treasury yields have turned negative, the possibility of pulling the benchmark interest rate into negative territory is low. Fed Chair Jerome Powell stated on the 15th, after lowering the benchmark rate to zero, that "negative interest rates are not appropriate."
Meanwhile, the Dow Jones Industrial Average closed at 21,200.55, up 2.39% (495.64 points). This marked the first two consecutive days of gains since the COVID-19 crisis began in earnest last month. The Standard & Poor's (S&P) 500 index closed at 2,475.56, up 1.15% (28.23 points). However, the Nasdaq index fell 0.45% to 7,384.29.
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