By Sam Goldfarb

U.S. government bond yields fell toward the bottom of their recent range Tuesday, highlighting a search for safer assets amid worries about a deadly virus outbreak in China.

The yield on the benchmark 10-year U.S. Treasury note settled at 1.768%, its lowest close since Dec. 3, compared with 1.834% on Friday. U.S. markets were closed Monday for Martin Luther King Jr. Day.

Yields, which fall when bond prices rise, slid overnight along with global stocks after a leading Chinese health official said a newly identified virus that originated in central China had spread between humans. That sparked memories among investors of the 2002 outbreak of SARS, a similar coronavirus that killed 774 people and slowed the Chinese economy.

Investors view Treasurys as one of the safest assets in the world because they offer a steady stream of income with essentially no risk of default.

Some analysts said Treasurys had been primed to rally because they hadn't sold off in recent weeks, even as investors piled into riskier assets, sending stocks to new records.

"You're definitely getting the bid here in rates," said Justin Lederer, senior trader of interest rates at Cantor Fitzgerald LP. "It's been impressive that even with the more risk-on events...you really haven't been able to push rates significantly higher."

Despite progress in U.S.-China trade relations and easing recession fears, analysts say demand for Treasurys has been supported by soft inflation and signals that Federal Reserve officials are in no rush to change short-term interest rates.

Inflation is a main threat to longer-term bonds because it erodes the purchasing power of their fixed payments. Any sign that the Fed is poised to cut interest rates again would likely drag down Treasury yields in the near-term, especially on those with shorter maturities. But it could eventually lead to higher longer-term yields if it helped spur inflation, some analysts say.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

January 21, 2020 17:09 ET (22:09 GMT)

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