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Bonds: interest rates on debt plunge

The interest rate on US ten-year debt fell to 0.323% this morning, the lowest in its history.

Faced with the new wind of stock market panic hitting the world markets on Monday, investors took refuge in the debt of the countries reputed to be safe, the United States and Germany in the lead, causing interest rates to drop to levels never reached.

Around 1:00 p.m. GMT (2:00 p.m. in Paris), the interest rate on the ten-year US debt eased to 0.429%, a drop of 33 basis points, after having fallen to 0.323% a little earlier, the lower in its history. The interest rate moves in the opposite direction to that of the bond price.

Unprecedented, all US debt yields were below 1% Monday after falling below this level of the 30-year debt rate. This rate was 0.899% after falling below the symbolic threshold of 1% a few hours earlier.

“There is a very strong risk aversion” on the debt market, notes Hubert Lemoine, director of investments at Schelcher Prince Gestion, interviewed by AFP.

Other safe haven for investors, the German ten-year rate, the “Bund”, quoted -0.874% at the start of the afternoon, down 16 basis points, after touching a new downward record at – 0.891%. The 30-year-old was -0.526%, shortly after reaching its new all-time low of -0.548%.

The French ten-year rate also sank a little more into negative territory, at -0.405% against -0.352% at the previous close, after hitting a low at -0.414% in the middle of the morning.

Investors took refuge in these assets considered to be low risk, these States presenting little risk of defaulting, while the financial centers knew a new dark Monday: in Paris, the CAC tumbled by 7.62%, in Frankfurt, the Dax lost 7.40% and in London, the FTSE 100 collapsed 7.15%.

These dramatic falls come in the wake of the collapse of oil prices as talks between the Organization of the Petroleum Exporting Countries (OPEC) and its allies, mainly Russia, failed on Friday.

ECB due on Thursday

Saudi Arabia’s decision to enter a price war with Russia after Russia’s refusal to participate in a further cut in production quotas at last week’s meeting led oil prices to falter more than 30%, a plunge observed in 1991 at the time of the Gulf War.

Conversely, the interest rate on the debt of certain peripheral countries of the euro zone was tightening, like the Italian ten-year rate which moved to 1.336%, an increase of 27 basis points compared to at the previous closing, while Italy is facing economic paralysis due to the coronavirus crisis.

The debt market and all financial markets have been under very strong pressure since the outbreak of this health crisis around the world, raising fears of massive corporate bankruptcies due to potential containment measures.

Faced with the financial turmoil, the authorities are trying to reassure: after announcing a surprise drop in interest rates of 0.50 point on March 3, the American Central Bank announced Monday that it would inject at least $ 150 billion per money market day.

The European Central Bank is now eagerly awaited and could deploy a range of measures on Thursday, some of which are new, while its room for maneuver on rates is reduced due to rates already at their lowest.

After the giant cheap loans granted to banks (TLTRO) since this fall, whose conditions could be further relaxed, it could be to launch a loan program “for SMEs”, told AFP a source close to the ECB.

Faced with the epidemic, its president, Christine Lagarde, should more than ever invite states to react, she who insists that monetary policy cannot do everything.

Among potential budgetary measures, analysts at AM Postal Bank mention measures to support consumption and corporate cash flow. There are “a lot of solutions to lessen the recessive effects of the coronavirus, it remains to be seen whether they will be implemented,” they summarize.

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