February 10, 2020 / 8:52 PM / 18 days ago

TREASURIES-Yield curve inverts on coronavirus-linked demand

(New throughout)

By Kate Duguid

NEW YORK, Feb 10 (Reuters) - Continued demand for safe-haven assets from investors nervous about the economic damage caused by the coronavirus outbreak drove yields lower on Monday, inverting one measure of the yield curve.

The spread between yields of three-month and 10-year Treasuries was at minus 1.21 basis points in afternoon trade, having inverted earlier in the day. The spread was below zero for several days last week.

Weekend headlines about the death toll from the coronavirus surpassing that of Severe Acute Respiratory Syndrome (SARS) in 2002/2003 kept demand for safe-haven U.S. Treasury debt robust, driving yields lower.

The coronavirus death toll rose to 908 on Sunday as 97 more fatalities were recorded - the largest number in a single day since the virus was detected in the city of Wuhan in December.

As of 0500 GMT on Monday, there had been 40,235 confirmed cases reported in China and 909 deaths, as well as 319 cases in 24 other countries, including one death, WHO chief Tedros Adhanom Ghebreyesus said.

The full economic impact of the virus is not yet evident, but is expected to exacerbate a slowdown in the Chinese economy. The virus has forced Beijing to extend holidays in manufacturing centers and impose strict population controls in major cities.

Treasury debt, which serves as a safe-haven investment in times of geopolitical and economic volatility, has been in demand since the start of the year. The 10-year Treasury yield has fallen 18.7% since Dec. 31. It was last 2.5 basis points lower to 1.553%.

Driving the market are “concerns that the coronavirus is not dying down. That it’s going to have a big impact on global growth and could be the tipping point to push the economy into a recession,” said Mary Ann Hurley, vice president, fixed income trading at D.A. Davidson.

Across maturities Treasury yields were lower, with the two-year note yield down 2 basis points to 1.379% and the 30-year bond yield down 1.9 basis point to 2.024%.

This week, the Treasury Department will auction off $38 billion in new three-year notes on Tuesday, $27 billion 10-year notes on Wednesday and $19 billion of 30-year bonds on Thursday. Strong demand was expected with coronavirus headlines still likely to be in the news.

Also on investors’ radar this week is Fed Chair Jerome Powell’s testimony before the House Financial Services Committee on Tuesday and the Senate Banking Committee on Wednesday.

“I think (Powell) is probably going to be pushed for more comments on the potential impacts of the coronavirus and how the Fed is going to respond,” said Hurley. (Reporting by Kate Duguid; Editing by Andrea Ricci and Grant McCool)

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