Treasury yields edge lower as cautious tone from IMF and Fed halts rally

U.S. government debt prices were slightly higher Wednesday morning as investors paused to take stock after Tuesday’s rally on Wall Street.

At around 2:10 a.m. ET, the yield on the benchmark 10-year Treasury note was lower at 0.7413% and the yield on the 30-year bond edged down to 1.5267%.

A dire economic outlook from the International Monetary Fund (IMF) late on Tuesday offered a reality check to investors hoping for a rapid rebound for the global economy.

In a blog post, IMF Chief Economist Gita Gopinath cautioned that “the forthcoming June World Economic Outlook Update is expected to show negative growth rates even worse than previously estimated” and the current crisis is “unlike anything the world has seen before.”

Yields and stock markets also retreated from Tuesday’s highs after Federal Reserve Chairman Jerome Powell testified before Congress that the central bank would approach its new corporate bond buying plan based on market conditions, and would not “run through the bond market like an elephant.”

Powell also warned that the American economy would not truly recover until the public is convinced that the coronavirus pandemic is under control. His testimony continues at 1 p.m. ET on Wednesday.

Risk sentiment had been boosted Tuesday by the Fed’s plan to buy individual corporate bonds, along with a Bloomberg report of a potential $1 trillion infrastructure program from the White House, the discovery of a new drug which drastically reduces coronavirus death rates in seriously ill patients and a record surge in U.S. retail sales.

U.S. housing starts and building permits figures for May are due at 8:30 a.m., but there are no major economic data releases on Wednesday.

Auctions will be held Wednesday for $35 billion of 105-day Treasury bills, $40 billion of 154-day bills and $17 billion of 20-year bonds.

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