January 29, 2020 / 1:59 PM / 19 days ago

TREASURIES-Yields fall as death toll from Chinese virus rises

    * Investors concerned about economic impact of virus
    * Fed expected to keep rates unchanged 

    By Karen Brettell
    NEW YORK, Jan 29 (Reuters) - U.S. Treasury yields fell on
Wednesday as the death toll from a Chinese virus rose sharply,
though they held above three-month lows reached on Tuesday where
there is technical support.
    The death toll from a new coronavirus in China rose sharply
to 132 on Wednesday with nearly 1,500 new cases, as Japan said
it flew citizens out of Wuhan, the epicentre of the virus.

    Uncertainty over the economic impact of the virus has
resulted in sharp swings in risk sentiment over the past few
days.
    "We’re seeing this as a short-term ‘risk off’ scenario in
the market, if you look at past iterations of this, they tend to
be very short lived," said Charlie Ripley, senior investment
strategist at Allianz Investment Management in Minneapolis.
    Benchmark 10-year note yields fell two basis
points to 1.62%. They dropped to 1.57% on Tuesday, the lowest
since Oct. 10, before bouncing sharply higher as stock markets
rallied.
    The closely watched yield curve between three-month bills
and 10-year notes very briefly inverted on Tuesday for the first
time since October. It traded at 4 basis points on Wednesday.
    That part of the yield curve inverted last March for the
first time since the financial crisis, signaling that a
recession is likely to follow in one-to-two years.
    The Federal Reserve is expected to leave rates unchanged
when it concludes its two-day meeting on Wednesday.
    Some analysts expect the U.S. central bank may increase the
interest it pays on excess reserves (IOER) by five basis points
to keep the rate closer to the middle of its target range, which
it would likely explain as being a technical adjustment.

    
      January 29 Wednesday 8:47AM New York / 1347 GMT
    
    
                               Price        Current   Net Change
                                            Yield %   (bps)
 Three-month bills             1.545        1.5769    0.005
 Six-month bills               1.54         1.578     0.003
 Two-year note                 99-224/256   1.4386    -0.018
 Three-year note               100-56/256   1.4241    -0.022
 Five-year note                99-174/256   1.4416    -0.024
 Seven-year note               99-192/256   1.5378    -0.021
 10-year note                  101-48/256   1.6183    -0.023
 30-year bond                  106-176/256  2.0729    -0.022
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         6.50         0.50    
 spread                                               
 U.S. 3-year dollar swap         2.50         0.50    
 spread                                               
 U.S. 5-year dollar swap         0.00         0.50    
 spread                                               
 U.S. 10-year dollar swap       -5.25         0.25    
 spread                                               
 U.S. 30-year dollar swap      -31.75         0.25    
 spread                                               
 

    
    

 (Editing by Kirsten Donovan)
  
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