Economist's Insights

Today’s Trading Activity – Stocks Sell Off and Treasury Yields Plummet as Investors Flee Risk Assets

Sep 5, 2017

U.S. stocks sold off sharply during the first half of Tuesday’s session as the Dow, S&P, and Nasdaq dropped 1.3%, 1.2%, and 1.6%, respectively, by the lunch hour. However, the indices had risen off of those lows by the closing bell. The Dow finished 1.1% lower while the S&P dropped 0.8% and the Nasdaq fell 0.9%. The steep losses for U.S. equities was just one force that helped push the 5-year and 10-year Treasury yields to their lowest levels since mid-November. According to a midday note from Vining Sparks’ Director of Trading, Mark Evans, “There are several factors which seem to be combining to spur the risk-off moves. Most prominent among them are the North Korean concerns, the pile-up needing Congressional action (including the debt ceiling), and the Category 5 Hurricane Irma which is headed toward the Caribbean/South Florida area.” On the day, the 5-year yield fell 9.7 bps to 1.64% and the 10-year yield fell 10.6 bps to 2.06%; both were the biggest single-day drops since March 15. In addition to all of those risk-off forces, shorter Treasury yields also responded to dovish Fed commentary (more below). The 2-year yield dropped 5.2 bps to 1.28%, the biggest single-day decline since May 17. The Dollar weakened against every other major currency, ending at one of its weakest levels since January 2015, and fed funds futures projected a slower rate path. Those futures contracts closed pricing in the first month with a greater-than-50-percent-chance of a Fed rate hike as July 2018.