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Treasury Yields Fall Again as U.S. Economy Teeters on the Brink of Contraction

Last Updated September 23, 2020 1:16 PM
Sam Bourgi
Last Updated September 23, 2020 1:16 PM
  • U.S. Treasury yields approach multi-week lows.
  • Atlanta Fed issues sharp downward revision to Q4 GDP forecast.
  • The U.S. economy is in the midst of a yearlong slowdown that could complicate President Trump’s re-election bid.

U.S. government debt yields declined on Monday, as investors parked their capital in risk-off assets amid signs that the world’s largest economy was grinding to a halt.

The latest GDP forecast from the Atlanta Federal Reserve Bank paints a damning picture of the U.S. economy at the end of 2019. If the forecast holds, Q4 would mark America’s worst quarter under President Trump.

Treasury Yields Slide

For the fifth time in six days , U.S. government bond yields declined on Monday as demand for Treasurys rose. The yield on the benchmark 10-year Treasury note was down 3 basis points at 1.80%, the lowest in almost two weeks, according to CNBC data. Yields fall as bond prices rise.

US government debt yields
After a massive recovery, the 10-year Treasury yield has corrected lower over the past week. | Chart: CNBC 

The yield on the 2-year Treasury broke below 1.60% for the second time in three trading days. It was last down 2 basis points at 1.59%.

The 30-year Treasury bond also saw its yield drop to 2.28% after reaching a high of 2.34%.

U.S. Economy Grinds to a Halt in Q4

The U.S. economy is headed for its worst quarter in years as lackluster consumer spending and a deep contraction in manufacturing take their toll.

According to the Atlanta Fed’s GDP tracker , the U.S. economy is poised to grow just 0.3% in the last three months of 2019. That’s down from a prior estimate calling for 1% growth. The regional Fed bank cited disappointing industrial production and retail sales figures for its downward revision.

Last week, the Federal Reserve reported that industrial production plunged in October at the fastest clip in a year-and-a-half. While the decline was magnified by a six-week work stoppage at General Motors, weakness extends beyond the automotive industry.

US GDP by quarter
If the U.S. economy grows just 0.3% this quarter, it would mark one of the weakest expansion periods since the 2008-09 financial crisis. | Chart: tradingeconomics.com 

With factory output slipping, consumer spending continues to do much of the heavy lifting for the U.S. economy. But that segment of the economy has also come under pressure amid record debt levels and waning consumer sentiment.

Retail sales – a key proxy for consumer spending – fell in September and rose less than expected in October  when automobile purchases were stripped away.

If the Atlanta Fed’s projections hold, Q4 2019 would mark the worst quarter for the U.S. economy under President Trump and one of the weakest expansions since the financial crisis. It would also magnify a troubling trend for the world’s largest economy as a precarious time in its trade war with China.

Annual growth of just 0.3% puts the U.S. economy on the brink of contraction. Such a move would be disastrous for President Trump as he seeks re-election next November.