Tags: Coronavirus | bond | yields | treasuries | risk

Virus Fears Send Treasury Yields to Record Lows

Virus Fears Send Treasury Yields to Record Lows
(Andre Lefrancois/Dreamstime)

Tuesday, 25 February 2020 03:26 PM

The benchmark 10-year U.S. Treasury note hit a record low yield on Tuesday as investors kept up the previous session's flight to safety, buying Treasuries on mounting worries the coronavirus epidemic might slam global economic growth.

The 10-year yield was down 4.5 basis points in afternoon trading at 1.3321%. It fell as low as 1.3072%, below its previous record of 1.321% reached on July 6, 2016.

The 30-year bond yield also touched a record low and yields on other treasuries declined while U.S. stock indexes sank. U.S. health officials alerted Americans to begin preparing for the spread of coronavirus.

Analysts said investors were buying up Treasuries for perceived safety even if yields are low. Treasuries have become "like a black hole sucking in liquidity all over the world because people don’t know how bad the coronavirus is going to get," said Don Ellenberger, head of multisector strategies at Federated Hermes. "It's a market that’s not concerned about value right now, it's concerned about safety," he said.

Dozens of countries have accelerated emergency measures to curb the spread of the coronavirus, which has killed close to 2,700 in China - although the World Health Organization says the outbreak there has been declining.

Even before the epidemic's reach expanded, many traders had re-evaluated expectations for global growth in 2020, John Herrmann, director of U.S. rates strategy for MUFG Securities, said. He noted that yields on the 10-year had been approaching 2% late last year. "People had started to dial down their expectations.

The coronavirus just piled onto that as a giant risk-off trend," Herrmann said. In economic data, a closely watched index showed U.S. metro area home prices rose 2.9% in December from a year earlier, slightly above expectations.

The Conference Board said its consumer confidence index ticked up to a reading of 130.7 this month from a downwardly revised 130.4 in January. Economists polled by Reuters had forecast it edging up to 132.0 in February. While the report could be read positively, Jefferies economist Tom Simons said: "If you're looking for bad news, you can find it."

Trading volume on 10-year CBOE Treasury futures were set to be the highest since at least May 2018. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 5.4 basis points at 1.2125%.

On Tuesday afternoon the U.S. Treasury Department said it had accepted $40 billion in bids for 2-year notes, out of $98.2 billion worth of public bids tendered, at a high yield of 1.188% - the lowest since November of 2016.

Primary dealers accounted for 45% of competitive bids accepted, a relatively high level that might ordinarily indicate weak demand for the instruments. But Simons said a continued decline in 2-year yields seemed to show traders looking for the U.S. central bank to act. "The market is pricing in a response from the Fed in some way," he said.

© 2020 Thomson/Reuters. All rights reserved.

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The 10-year U.S. Treasury note hit a record low yield on Tuesday as traders kept up the flight to safety on concerns the coronavirus epidemic would have a significant impact on global growth, coupled with soft U.S. economic data.
bond, yields, treasuries, risk
Tuesday, 25 February 2020 03:26 PM
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