Warning: file_exists(): File name is longer than the maximum allowed path length on this platform (260): C:\zpanel\hostdata\zadmin\public_html\forexbr_com_br/wp-content/cache/supercache/www.forexbr.com.br/2020/02/26/in-one-chart-this-chart-shows-the-record-setting-plunge-in-treasury-yields-will-hinge-on-what-stocks-do-from-here/meta-wp-cache-a08f1d04e428f1d6a6ef8a6479280673.php in C:\zpanel\hostdata\zadmin\public_html\forexbr_com_br\wp-content\plugins\wp-super-cache\wp-cache-phase2.php on line 71 In One Chart: This chart shows the record-setting plunge in Treasury yields will hinge on what stocks do from here – Forex Brasil

In One Chart: This chart shows the record-setting plunge in Treasury yields will hinge on what stocks do from here

As the 10-year U.S. Treasury yield extends it slide into record territory, one strategist says a further rally in the bond-market will depend on whether the stock-market selloff can keep up its dizzying pace.

The drop in bond yields has consistently followed the slump in stocks as investors have fled risk assets for the shelter of government paper, even as the interest earned from holding bonds shrinks, Jonathan Hill, a rates strategist at BMO Capital Markets, said in a Thursday note.

If equity investors stay panicked over the rapid spread of the COVID-19 epidemic, Hill says bond-market participants will contemplate the possibility of the 10-year note yield falling below the 1% floor.

The 10-year Treasury note yield TMUBMUSD10Y, -2.87% is trading at 1.262% on Thursday, after carving out a record intraday low of 1.246%. Bond prices move in the opposite direction of yields.

The chart below shows the decline of the S&P 500 SPX, -1.65% index in a rolling five-day period is nearing 10%, with the selloff matching the extremity of two previous shocks to risk assets in August 2011 and August 2015. The broad-based equity benchmark fell into correction territory on Thursday, defined as a 10% drop from an intraday record.

A stock-market decline of this magnitude has historically served as a buying opportunity for bargain-seekers, a widely-repeated line by bullish money managers who saw valuations in U.S. equities as overheated prior to the coronavirus outbreak.

“For several years, this threshold was generally a solid buy signal, and as a result dip-buying willingness here will be closely watched as a potential inflection point,” said Hill.

If investors try to buy the dip, it could blunt the intense demand for havens seen over the past few days, and prevent a further decline in yields. But if panic continues to take hold of risk assets, Hill suggested that all bets are off on the benchmark bond’s rally.

Back in 2011, stocks took a beating as the eurozone debt crisis kicked off. Investors were also contending then with a downgrade of the U.S. government’s gold-plated credit rating by S&P, following an impasse in Congress on raising the country’s debt limit.

And in 2015, worries that a seizure of China’s economy would spill over into the U.S. sparked sharp declines in stocks. That August saw surprise devaluations by the People’s Bank of China, adding to fears that China would fail to maintain its rapid expansion.