T-Yields Drop On EU Lockdown Concerns

US bond yields experienced a sharp drop on Friday, the primary catalyst for which was a continued ramp up in concerns about lockdowns in Europe where Covid-19 infection and hospitalization rates continue to surge.

The drop in bond yields coinciding rally in bond prices reflects a broader outperformance of safe-haven assets on Friday. US 10-year Treasury yield dropped more than 6bps to 1.52%, now more than 13bps below earlier weekly highs at 1.65%.

Declines of a similar scale were seen across the treasury curve. The 2-year yield fell 5bps to 0.45%, nearly 10bps below earlier weekly highs, the 7-year fell 7bps to 1.40% and the 30-year fell 5bps to 1.92%.

Austria on Friday become the first major western European nation to announce the re-imposition of strict lockdown measures since early 2021, which will begin on Monday and last at least 20 days.

Germany’s health minister refused to rule out that Germany could follow, saying that the pandemic situation there was becoming increasingly severe.

Some investors voiced fears that the US could be headed down a similar path. The seven-day moving average number of Covid-19 infections reported per day in the US has been trending higher in November.

Having fallen to the low 70Ks in early November, the seven-day moving average is now approaching 100K. Recent rate volatility is likely exaggerated by impaired liquidity that has plagued the market for the past few weeks and liquidity is also expected to worsen next week before the market will close on Thursday for Thanksgiving.