By Sam Goldfarb and Caitlin Ostroff 

The yield on the benchmark 10-year U.S. Treasury note fell to an all-time low Tuesday, the latest milestone in a decadeslong bond rally driven by persistently low inflation and turbocharged by worries the coronavirus could disrupt an already-sluggish global economy.

After hovering below 2% for several months, the 10-year yield was pushed sharply lower by reports that coronavirus cases had surged in countries as disparate as Italy, South Korea and Iran. As investors fled riskier assets for safer ones, like bonds, the Dow Jones Industrial Average fell more than 2% Tuesday, while U.S. crude oil lost more than 2.5%.

In recent trading, the 10-year yield was as low as 1.317%, according to Tradeweb, compared with 1.377% Monday. That breached Tradeweb's previous intraday low of 1.325% set in July 2016 after the U.K.'s vote to leave the European Union and was also below the record closing low of 1.364% set the same month. Yields fall when bond prices rise.

Treasury yields are a key economic gauge, typically rising when growth and inflation are accelerating and sliding when the economy is losing steam. They also play a critical economic function by helping determine borrowing costs for consumers, businesses, and state and local governments.

Most analysts agree that yields have been depressed in recent years by long-term structural factors, such as stubbornly slow global growth, even more muted inflation, and ultralow interest rates set by the world's major central banks.

New coronavirus infections outside of China have threatened to exacerbate those conditions by disrupting supply chains, depressing global travel and potentially leading to a new round of monetary stimulus.

How far Treasury yields fall "depends on how much the virus spreads," said Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson & Co. "I think there's a floor, but I don't know quite where it is. We're in uncharted territory."

A handful of factors influence Treasury yields. One is the level of short-term interest rates set by the Federal Reserve. Another is inflation, which erodes the purchasing power of bonds' fixed payments.

As it stands, the Fed's benchmark federal-funds rate is set between 1.5% and 1.75%, and an increasing number of investors now expect at least two more interest-rate cuts later this year. Meanwhile, inflation remains muted, with the Fed's own preferred gauge remaining stubbornly below its 2% annual target.

Until recently, investors have been comforted by forecasts that the economic damage from the coronavirus would be relatively short-lived, both around the world and in the U.S.

On Friday, however, some of that confidence was dented when a measure of manufacturing and service-sector activity fell to its lowest level in more than six years. On Sunday, officials from the Group of 20 major economies also warned that the coronavirus posed a serious risk to global growth. And stocks fell sharply Monday after largely shrugging off coronavirus concerns in previous weeks.

Investors are "definitely worried about global growth and what global growth will look like even if we do get a medium-term resolution," said Michael Lorizio, a senior trader at Manulife Investment Management.

Looking beyond the record, analysts said the bond market has been sending mixed signals about the economy.

One concerning development is that the 10-year yield has fallen well below that of the three-month Treasury bill, a phenomenon known as an inverted yield curve that often occurs before economic contractions.

Still, the 10-year yield remains above the yield of other short-term Treasurys such as the two-year note. Because short-term Treasurys are particularly sensitive to the outlook for monetary policy, that is a sign that investors are confident that the Fed will lower rates relatively soon and possibly help the economy.

Treasury yields, notably, have been depressed for years and stock indexes have continued to climb to records. Though falling yields can reflect growing economic concerns, they can be helpful to businesses by lowering borrowing costs. Treasurys are also heavily influenced by economic conditions and bond yields outside of the U.S., with yields pulled lower by the trillions of dollars worth of bonds elsewhere in the world that carry negative yields.

Yields have trended lower since shortly after the Fed raised its key policy rate above 19% in June 1981 in an attempt to tame soaring inflation. These days, many economists are concerned about the lack of inflation. But its absence has provided a solid base of support for government bond prices that has persisted even when investors have grown slightly more optimistic about the economy.

In recent years, there have been brief moments when investors thought inflation could rise materially higher, most notably after President Trump's election in November 2016, when many expected tax cuts and infrastructure spending to boost growth. But the 10-year yield has never climbed much higher than 3% and has spent much of the past five years hovering between 1.5% and 2.5%.

Economists have offered a variety of explanations for why growth and inflation have been sluggish in recent years. Those include the historic levels of debt held by governments and businesses, which some argue has curtailed investment. Some also argue that technological advancements and global supply chains have held down the cost of producing goods.

Still, not all investors think that Treasurys will continue rallying.

After more than a decade of growth, investors keep getting worried that the U.S. economy is going to falter, but "every time this has happened, things have snapped back in the other direction," said Scott Kimball, a portfolio manager at Taplin, Canida & Habacht LLC.

Write to Sam Goldfarb at sam.goldfarb@wsj.com and Caitlin Ostroff at caitlin.ostroff@wsj.com

(END) Dow Jones Newswires

February 25, 2020 14:35 ET (19:35 GMT)

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