U.S. Treasury yields slipped Tuesday, with the 10-year hovering at its lowest level since February as fears about the spread of the delta variant of the coronavirus that causes COVID-19 sparked an ongoing flight to safe assets like government bonds.

What are yields doing?

The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.178%

fell around 2.6 basis points to almost 1.160%, according to FactSet.

The 2-year note yield
TMUBMUSD02Y,
0.201%

was off 3.9 basis points at 0.198%.

The 30-year Treasury bond yield
TMUBMUSD30Y,
1.823%

dropped 3.9 basis points to 1.805%.

What’s driving the market?

Treasury yields dropped as investors sought safety in assets like government paper, even as stocks — a risky asset class– rose. The Dow Jones Industrial Average
DJIA,
+1.41%

was higher by 1%. On Monday, the index had suffered its biggest one-day loss since October, on growing fears over the spread of the delta variant.

The World Health Organization said cases and deaths are climbing globally after a period of decline, spurred by the highly contagious delta variant.

Analysts said the virus worries added to fears about the outlook for economic growth that had been brewing in the bond market in recent months as low vaccination rates in many countries in Asia in particular prolong the pandemic.

What are analysts saying?

One question for investors is whether the rally in Treasurys is driven largely by technicals or does represent a “safe-haven bid” related to the delta variant, said W. Brad Bechtel, global head of FX strategy at Jefferies, in a note.

So far, authorities have appeared to largely resist reimposing large-scale lockdown restrictions, “but the market is still unsure if that will definitely be the case, or if we’ll be locking down in the fall again,” Bechtel said. “So I am not sure how much of this bond market is safe-haven vs. technical at the moment, perhaps a little of each.”

BMO Capital Markets strategists Ian Lyngen and Ben Jeffery said that the “the floor for rates” doesn’t appear to be evident at the moment. And “there has been plenty of chatter surrounding the possibility 10-year yields dip below 1.0%; an eventuality that would be a short-lived endeavor, but not one that’s off the table,” they wrote in a Tuesday morning note.

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