Treasury Yields Tumble as New Virus Variant Spurs Hunt for Safe Havens

U.S. Treasury yields posted their sharpest drop since the pandemic began Friday as investors rushed toward safe haven assets following the emergence of a new coronavirus variant in South Africa.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 11.3 basis points at 0.532%, the sharpest drop since March 2020.

The yield on 10-year Treasury notes was down 11.3 basis points to 1.531%, the largest drop since February of this year.

Yields fall when prices rise. Yields had been rising throughout the week following President Joseph Biden's announcement Monday that he would renominate Jerome Powell to a second term at the helm of the Federal Reserve. That, along with signs of strength in the U.S. economy, had pressed investors into taking bets that the Fed would move more aggressively to fight inflation.

"Inflation is rising, and Covid news are getting worrisome. The problem is that they can’t use the same tools to fight back inflation and the economic slowdown. And the choice will be difficult," said Ipek Ozkardeskaya, a senior analyst at Swissquote.

European stocks were set for their worst day in more than a year as countries in Europe tightened travel controls in hopes of containing the new variant. The yield curve steepened, with spreads between 5- and 30-year Treasuries rising back to their levels before the news of Powell's reappointment on Monday.