(Bloomberg) -- It’s a landmark day for Treasuries, with concern about the latest Covid variant putting the market on course for its biggest rally since the early months of the pandemic.
The advance drove down the yield on the 10-year note down by as much as 15.1 basis points to 1.483% as investors piled into haven assets. Even after paring its move slightly, the yield remained on course for its biggest one-day fall since March 2020.
Poor post-holiday liquidity in Treasuries appears to have amplified the move, along with widespread positioning in favor of a monetary policy shift in the opposite direction. Two- and five-year yields reached their highest levels of the pandemic on Wednesday, providing increased scope for Friday’s post-Thanksgiving turnaround.
“I’d imagine that thin markets are only exacerbating the sell-off in risk assets and rally in safe havens,” said Zachary Griffiths, rates strategist at Wells Fargo Securities. “It remains to be seen how much of a global impact the new variant may have, but if there is another big outbreak resulting in more restrictive measures by governments across the globe, it may delay the more hawkish central bank policy currently priced in by front-end markets.”
On Thursday, economists at Goldman Sachs Group Inc., said they expect the Federal Reserve will move faster than expected in their tapering of monetary policies, as inflationary pressures build.
The central bank will double the pace it’s withdrawing its massive asset purchase program to $30 billion a month from January and start raising interest rates from near zero in June, the economists led by Jan Hatzius said in a report to clients on Thursday.
Rate hikes will occur in September and December, and again twice in 2023, the economists said, revising their previous forecast of a hike in July and November.
Meanwhile, traders on Friday pushed back the timing of a first 25-basis-point rate increase by the Fed to September from June, while briefly pricing out any more hikes until 2023.
The pain is being felt across global markets, hitting equity benchmarks, emerging-market stocks and bonds, and the Bloomberg dollar index. The new strain, identified in South Africa and also discovered in two travelers to Hong Kong is sparking fear of another resurgence. The number of cases linked to the new variant is about 100 in South Africa.
The news is “a harsh reminder that we are still dealing with a pandemic that is not completely under control,” Griffiths said.
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