January 23, 2020 / 8:40 PM / a month ago

TREASURIES-U.S. yields skid as investors weigh new virus impact

    * New virus kills 18 people, 634 infected
    * WHO says too early to declare new virus as global
    * ECB's Lagarde says monetary policy to remain accommodative
    * U.S. 10-year TIPs auction shows mixed results
    * U.S. yield curve flattest in five weeks

 (Adds analyst comment, results of U.S 10-year TIPs auction,
updates prices, yield curve milestone)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 23 (Reuters) - U.S. Treasury prices rallied on
Thursday, pushing yields to multi-week lows, boosted by
safe-haven demand on persistent concerns about the impact of the
latest coronavirus, which recently broke out in China.
    U.S. 30-year yields dropped to a seven-week low, while those
on two-year and 10-year notes fell to fresh two-week troughs.
    At the same time, the yield curve flattened on Thursday
after steepening last week, as sentiment soured amid the Chinese
coronavirus. The spread between the two-year and 10-year note
yields contracted to 21.04 basis points, the
tightest gap in five weeks.
    The latest virus has killed 18 people and infected 634, as
China placed millions of people on lockdown on Thursday in two
cities at the epicenter of the outbreak.
    The virus, which emerged late last year from illegally
traded wildlife at an animal market in the central Chinese city
of Wuhan, has spread to many parts of Asia, including Vietnam,
Singapore, South Korea, Thailand, and Japan. The United States
has also reported one case. 
    "The coronavirus is adding a bid to Treasuries because of
the uncertainty of how widespread it could become and whether it
would inhibit businesses such as airlines and hotel, said Lou
Brien, market strategist at DRW Trading in Chicago. "Obviously,
there is the concern for the loss of life as well."
    Also on Thursday, European Central Bank President Christine
Lagarde spoke after the bank launched a broad review of its
policy because it has fallen short of its inflation target of
just under 2% for years despite implementing aggressive stimulus
measures. The ECB also left its policy rates
    Lagarde also struck a dovish tone at her news conference,
noting that monetary policy has to remain highly accommodative
for a prolonged period of time.
    Germany's 10-year bond yield fell after her remarks, which
was last at -0.304%. Lagarde's comments also weighed
slightly on Treasury yields. 
    In afternoon trading, U.S. 10-year yields fell
to  1.732%, from 1.771% late on Wednesday. Earlier in the
session, 10-year yields fell to two-week lows of 1.72%.
    Yields on U.S. 30-year bonds were at 2.178%,
down from 2.219% on Wednesday. Thirty-year yields earlier fell
to seven-week troughs of 2.172%.
    On the short end of the curve, U.S. two-year yields fell to
two-week lows of 1.489% from Wednesday's 1.526%. They
were last at 1.513%.
    The U.S. Treasury on Thursday also auctioned $14 billion in
10-year Treasury Inflation-Protected Securities (TIPS) with
mixed results. Domestic demand was a little weaker than
expected, but indirect bidders, which include foreign central
banks, showed strong bids. Indirect bidders claimed 73.2% of the
offering, compared with a 65.4% average.
      January 23 Thursday 3:32PM New York/2032 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.525        1.5564    0.002
 Six-month bills               1.525        1.5624    0.002
 Two-year note                 100-54/256   1.5138    -0.012
 Three-year note               99-250/256   1.508     -0.019
 Five-year note                100-246/256  1.5469    -0.028
 Seven-year note               100-164/256  1.6518    -0.036
 10-year note                  100-36/256   1.7342    -0.037
 30-year bond                  104-64/256   2.1803    -0.039
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         6.25        -0.75    
 U.S. 3-year dollar swap         3.50        -0.50    
 U.S. 5-year dollar swap         0.50        -0.50    
 U.S. 10-year dollar swap       -5.25        -0.50    
 U.S. 30-year dollar swap      -31.50        -0.50    
 (Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan
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