U.S. Government Bonds Extend Rally on Coronavirus Concerns -- Update
January 27 2020 - 4:38PM
Dow Jones News
By Sam Goldfarb
U.S. government bond yields dropped to their lowest levels in
months Monday, spurred by investors' flight to safer assets as they
grappled with the spread of the deadly coronavirus.
The yield on the benchmark 10-year U.S. Treasury note settled at
1.605%, the lowest close since Oct. 9, compared with 1.680%
Friday.
Yields, which fall when bond prices rise, extended recent
declines after Chinese health officials said the coronavirus was
becoming more contagious, having already infected more than 2,700
people and having killed at least 80, most of them in China's Hubei
province.
Though its potential economic impact remains unclear, the spread
of the coronavirus has stirred memories of the 2002 outbreak of
SARS, a similar virus that studies showed slowed the Chinese
economy while killing 774 people.
In the bond market, the virus has upended a monthslong period of
calm that had left the 10-year yield drifting between roughly 1.8%
and 1.9%. Treasurys tend to attract investors during times of
economic or political uncertainty because they offer a steady
stream of income with essentially no risk of default.
While investors entered 2020 in a relatively optimistic mood,
the spreading virus has exacerbated concerns that the global
economy -- which grew last year at the slowest rate since the
financial crisis -- remains on fragile footing and could be knocked
off course by unexpected shocks
"We're not starting off at a good point, and when you have the
second largest economy in the world facing a big slump, that does
not bode well for the rest of the globe," said Mary Ann Hurley,
vice president of fixed-income trading at D.A. Davidson &
Co.
As it stands, the 10-year yield remains comfortably above the
lows below 1.5% reached last summer. Those came before the U.S. and
China started making progress toward a preliminary trade agreement
that helped ease investors' recession fears, pushing yields
higher.
But the yield also has dropped well below the roughly 1.93%
level that it briefly reached in December. And the gap between
longer-term and shorter-term yields has also shrunk, in a sign that
investors are becoming less enthusiastic about the economic
outlook
At Monday's close, the 10-year note yielded 0.162 percentage
point more than the two-year note, down from 0.350 percentage point
at the end of last year, according to Tradeweb.
Adding to investors' concerns on Monday was data showing that
new U.S. home sales dropped 0.4% from the previous month. That was
well below the 1.5% gain that economists surveyed by The Wall
Street Journal had anticipated.
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
January 27, 2020 16:23 ET (21:23 GMT)
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