With a flurry of fresh COVID-19 cases and early signs of how severe the hit on the global economy could be, seasoned strategists are now warning that U.S. growth could come to a halt this year and that some Treasury yields may drop below zero — possibly as soon as this week.
The warnings come as a rout in equities and rate-cut expectations sent long-term Treasury yields to unprecedented lows last week. Over the weekend, China's manufacturing purchasing managers' index plunged to the lowest value on record amid a surge in COVID-19 cases and new fatalities around the world — including the first in the U.S.
Rates derivatives traders were already putting on wagers last week targeting the Federal Reserve slashing rates to zero by mid-year. Those bets are now likely to intensify as some investors start to see the risk of the U.S. economy screeching to a halt, or even slipping into a recession, by the end of the year. Scott Minerd, the chief investment officer of Guggenheim Partners, said such expectations will push U.S. Treasury yields below zero for the first time.