U.S. Government Bonds Extend Rally on Coronavirus Concerns -- Update

Date : 01/27/2020 @ 9:38PM
Source : Dow Jones News

U.S. Government Bonds Extend Rally on Coronavirus Concerns -- Update

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)

Copyright (c) 2020 Dow Jones & Company, Inc.

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