By Julia-Ambra Verlaine 

A global bond rally paused Tuesday after fears around the fallout from a viral outbreak in China pushed yields on U.S. government debt to their lowest levels in months.

The yield on the benchmark 10-year Treasury recovered to 1.642% Tuesday after bottoming at 1.57%, according to Tradeweb. That is up from 1.605% Monday and snaps a three-trading-day losing streak.

Some investors said they were waiting for more information before evaluating the potential economic damage from the coronavirus's spread. They said it would take a pandemic to dent global consumption and growth.

"To the degree coronavirus is symptomatic of...unknowns in the marketplace, it is way too premature to assess a view around a recession, " said Bob Browne, chief investment officer at Northern Trust Corp. "You need to see a marked slowdown in U.S. economic growth."

In one sign investors haven't given up riskier assets, many are holding on to junk bonds. Both Northern Trust and Aviva Investors said that they remained in high-yield bonds and that it would take a more severe drop in stocks before reconsidering.

Investors often sell lower-rated debt when they are nervous about the economy.

"The virus is not causing us to change positioning yet," said Kevin Matthews, the global head of high yield at Aviva Investors, an asset manager with $440 billion under management.

While analysts haven't dismissed the severity of the virus, some have noted that markets are increasingly facing external stresses such as extreme weather and geopolitical events. The Bank for International Settlements said climate-related risks could be a potential source of the next financial crisis in study published in January, dubbing them "green swans."

"Coronavirus has become the proximate driver -- it is the latest hamster spinning the macro risk wheel around," said Alex Roever, head of U.S. rates strategy at JPMorgan. "Two weeks ago it was Middle East tensions, and two weeks on it may be something else. The bond markets were quite sensitive to macro risks before the virus, and are likely to remain that way."

Investors and analysts are also studying previous outbreaks as point of reference -- even though many aren't entirely comparable given different mortality rates, incubation periods and rates of transmission.

Charles Schwab analysts found the MSCI World Index, which tracks developed-market stocks, declined 5.5% in the month after January 2016, when the Zika virus spread to several countries, but returned 2.9% over the course of six months. Morningstar analysts came to a similar conclusion, finding that, among the companies they covered, none suffered a long-term effect from the 2002-2003 SARS outbreak.

Write to Julia-Ambra Verlaine at Julia.Verlaine@wsj.com

(END) Dow Jones Newswires

January 28, 2020 16:45 ET (21:45 GMT)

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