New York CNN Business  — 

Yields on the 10-year US Treasury bond fell to a two-and-a-half-year low Thursday morning after the Federal Reserve indicated multiple interest rate cuts could be coming soon.

Bond yields tend to fall when investors sense rate cuts are looming. Bond yields move inversely to prices, so if the price of a bond goes up, the yield goes down.

But Thursday’s move is notable, because the last time the 10-year Treasury bond yielded less than 2% was in November 2016.

The Federal Reserve raised interest rates nine times between late 2015 and late 2018, lifting yields on US government debt. The 10-year Treasury yield rose above 3.2% in late 2018.

Since then, bond yields had been trending lower as investors sought safety amid a global economic slowdown.

Why bonds are falling

The US Treasury market is one of the biggest and most liquid markets in the world, which makes it a great safe haven during times of trouble — economic or otherwise. This could put additional pressure on yields, as the demand for bonds could rise amid geopolitical pressures.

On Thursday, tensions between the United States and Iran rose after the latter shot down a US drone in international air space.

The global trade war has also been weighing on investors’ sentiment and economies around the world. Although investors are concerned about a slowdown in the United States, it’s still among the world’s strongest economies, and investors trust US debt.

The Fed’s rate cuts are exacerbating Treasury yields’ declines.

“I think for the move lower in yields there are a number of factors involved, but most important is that the Fed was already perceived as dovish,” said Shahab Jalinoos, head of macro trading desk strategy at Credit Suisse.

Even if the United States and China agree on a trade deal the Fed would probably still cut rates. After all, Fed Chairman Powell emphasized the importance of maintaining the economic expansion of the United States.

At Wednesday’s Federal Reserve meeting, the central bank made it clear that its next move would be a rate cut. In fact, the Fed’s median forecast sees two cuts by the end of the year.

“If the Fed delivers 2-3 rate cuts, we could see 10-year Treasury yields decline to as much as 1.75%,” wrote Goldman Sachs analysts including senior US economist Zach Pandl.

Searching for yield

For consumers, lower rates mean things like lower mortgage rates, which is favorable for spending. For companies, they mean cheaper debt to fund expansions. But for investors, lower rates — and therefore lower yields — also mean it is harder to find investments with an attractive return.

“It certainly forces investors to reach for yield and returns wherever they can, as the 2.0% 10-year yields is not enough of a return for a fund,” said Marc Ostwald, strategist for currencies, rates and emerging markets at ADM Investor Services.

But piling into riskier assets like stocks or corporate debt might not be the answer either. After all, the Fed cutting rates implies that the domestic economy isn’t doing too well.

Bond yields could “certainly go lower still if the market decides that the economic outlook has room to deteriorate further,” said Jalinoos.

Earnings season is coming up again as well, which could be painful for stocks, Ostwald added.

All this leaves investors in an awkward spot.