US 10-year Bonds Hit Record Low Yields

Savers Squeezed

US 10 Year Note Bond Yield - Credit: tradingeconomics.com

This is significant for two reasons. Firstly, a drop in yield levels ties in with rising demand for these bonds. US government debt is seen as a safe haven asset, so increasing demand for these bonds indicates rising economic uncertainty. Secondly, official figures from the US Bureau of Labor Statistics show American inflation consistently higher than these yield levels (approximately 2%, and rising). This means the real yield is extremely likely to a negative figure, or in other words investors in these bonds will lose money over time. 

As a result of this rush to these “safe haven” bonds, yields have plunged to historic lows. On the contrary, junk bonds (which offer higher yields to compensate a higher risk) have seen rising premiums to reflect the higher risks of an economic downturn spreading globally. 

Gold and Bonds

Demand for sovereign bonds and the US dollar have increased over the last week, most likely driven by the spread of the coronavirus epidemic to the middle east and most of Europe. But rather surprisingly, gold and silver have dropped in the same timeframe, dropping 3.48% and 9.06% respectively. This leaves gold sitting at $1,595.63 per troy ounce and silver at $16.79 per troy ounce. One explanation of this would be a mass sell-off by speculators to compensate for losses elsewhere, so this could be an opportune time to get hold of these precious metals.