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Barclays Sees Risk of Yield Shock as Main Street Lights Go Out

  • Stimulus may come too late to keep many U.S. businesses afloat
  • Negative-rate pricing to persist, yields may go sub-zero fast
Stores stand along an empty street on Cape Cod in downtown Provincetown, Massachusetts, on April 22,.

Stores stand along an empty street on Cape Cod in downtown Provincetown, Massachusetts, on April 22,.

Photographer: Adam Glanzman/Bloomberg

The U.S. bond market may be poised for a swift, dramatic repricing that would turn long-held fears about America joining the world’s negative-yield club into a near-term reality, according to Barclays.

The firm’s chief U.S. economist, Michael Gapen, sees a risk that “no one’s there to turn the lights on” when businesses reopen because emergency stimulus is not getting out fast enough to keep many of them afloat. Once the prospect of a sustained downturn factors into the market’s thinking, the 10-year Treasury rate could plummet toward or below zero, and long-term inflation breakevens would collapse, he says.