How the Treasury yield collapse shocked analysts and investors alike

Investors who thought U.S. Treasury yields could not get any lower received another shock Monday.

A plunge in oil prices combined with worries about the spreading coronavirus combined to drive market participants into Treasuries, accelerating a years-long rally that has taken yields on the 10-year Treasury to below 0.5%, a number few investors thought they would see in their lifetimes.

Bond yields fall as their prices rise. Other key factors that have stoked the move higher in U.S. government bonds include unprecedented asset purchases by the Federal Reserve, stubbornly low inflation, changing U.S. demographics and slower growth.

Few analysts got the call right. Forecasts have consistently overshot the eventual path of bond yields over the years.

The Fed delivered a rare intermeeting 50-basis point rate cut last week. Investors are betting the central bank will deliver at least another 75 basis points in rate cuts this month, according to CME's FedWatch tool.

But while the U.S. has room to ease, yields in Europe and Asia are already near record lows. A slimmer gap between yields in the United States and other economies could make some assets, such as the U.S. dollar, less attractive to yield-seeking investors.

Some investors believe yields on some U.S. government bonds may one day fall below zero, a move that would contribute to the world's already-massive pile of negative yielding debt.

Guggenheim Partners Global Chief Investment Officer Scott Minerd said his firm's models indicate the yield on the 10-year Treasury note will hit -50 basis points before year-end.

Fed officials have said they are opposed to negative interest rates in the U.S.

Ultra-low payouts on U.S. government bonds could supercharge the hunt for yield in other assets, including dividend paying stocks and gold.