After spending almost a decade writing exclusively about bonds, it’s sometimes easy to forget just how counterintuitive they can seem to many casual market observers. One survey last year showed just 8% of Americans could accurately define fixed-income investments, while about half of them answered “I do not understand it at all” with regards to U.S. Treasuries, municipal debt and high-yield corporate securities.
Understandably, those same people might now be confused about what to make of the historic levels reached in the $16.7 trillion Treasuries market over the past two weeks as the coronavirus outbreak intensified. The benchmark 10-year yield dropped below 1% for the first time in 150 years. The Federal Reserve shocked and awed by reducing its key short-term lending rate by 50 basis points in its first emergency interest-rate cut since 2008. Now 30-year Treasuries yield a paltry 1.3%, which is less than the S&P 500’s dividend yield. That had previously never happened since the U.S. government began selling long bonds in the 1970s.