February 27, 2020 / 8:44 PM / a month ago

TREASURIES-Yields pare declines after coronavirus worry sends 10-year below 1.25%

 (Updates with market activity)
    By Ross Kerber
    BOSTON, Feb 27 (Reuters) - U.S. Treasury yields steadied
following sharp declines on Thursday as coronavirus concerns led
investors to pile into safe-haven assets, with the yield on the
benchmark 10-year note reaching an all-time low for the third
consecutive day.
    A volatile trading session left the yield on the 10-year
 note down 1 basis point in afternoon trading at
1.3004%, having earlier reached a new record low of 1.2408% and
then briefly turning positive.    
    Yields on other Treasuries also fell, including on the
30-year bond, which also hit a new low before
steadying.
    Analysts said the rush to safety came as more coronavirus
cases were reported worldwide, drawing buyers for U.S.
government debt from among investors dumping equities and other
assets, as well as regular fixed-income customers.
    "The Treasury market is truly the risk-free asset for
everybody," said Michael Kushma, chief investment officer of
global fixed income at Morgan Stanley Investment Management. 
    How long the dynamic lasts depends on whether U.S. companies
start to lay off workers, which could lead to declines in
consumer spending, he said, adding the U.S. Federal Reserve is
likely tracking the same issue.
    "The key factor of how this will play out for the Fed is if
the labor market stays okay," Kushma said.
    Yields recovered somewhat from midmorning lows as investors
tried to predict how corporations and central bankers might
respond to disruptions.
    European Central Bank President Christine Lagarde played
down the economic impact of the coronavirus epidemic in an
interview published on Thursday, saying it was not yet causing
lasting economic damage.
    The U.S. yield curve, measured as the difference between
yields on two- and 10-year Treasury notes, was at 19 basis
points, up 5 basis points from Wednesday.
    The steepening reflected how the yield of the two-year note,
 which typically moves in step with interest rate
expectations, fell more than the yield of the 10-year. The yield
on the two-year was 3.8 basis points lower in afternoon trading
at 1.1071%, close to its lowest since late 2016.
    Wall Street's main indexes fell for the sixth straight
session and confirmed they entered a correction after setting
record highs this month.
    Officials have ramped up efforts to guard against the
virus's spread in the United States, where the number of
confirmed cases is still relatively small at 60, most of them
repatriated American passengers from the Diamond Princess cruise
ship docked in Japan.
    In addition the Commodity Futures Trading Commission said it
is closely monitoring trading as concerns about the epidemic
pushed oil futures to their lowest in a year and roiling wheat
and corn markets.
    The outbreak has reached a "decisive point," the head of the
World Health Organisation (WHO) said on Thursday, urging
countries to redouble efforts to contain it. 
    Goldman Sachs said U.S. companies will generate no earnings
growth in 2020 as the coronavirus spreads, deepening risks to
global growth.
    Growing uncertainty about the virus has driven bond yields
steadily lower since January. 
    While yields tended to trade within set ranges in 2019,
largely determined by developments in the U.S.-China trade
negotiations, this year's trading has been tied to more
unpredictable news about the coronavirus outbreak, said Jonathan
Cohn, Credit Suisse interest rate strategist.
    "In the trade war the administration (of U.S. President
Donald Trump) had a lot more control over the ebb and flow of
headlines, compared to an epidemic where governments globally
are trying to contain it," Cohn said.
    On Thursday the U.S. Treasury Department said it accepted
$32 billion in bids for seven-year notes out of $79.6 billion
worth of public bids tendered, at a high yield of 1.247%.
    Primary dealers accounted for 24% of competitive bids
accepted. The yield was the lowest on such an auction since
April of 2013, said BMO Capital Markets strategist Ben Jeffery.
    "Buyers are out there and they're willing to pay up for
Treasuries," he said.
        
      February 27 Thursday 3:28PM New York / 2028 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.42         1.4488    -0.069
 Six-month bills               1.295        1.3252    -0.088
 Two-year note                 100-9/256    1.1071    -0.038
 Three-year note               100-210/256  1.093     -0.032
 Five-year note                100-20/256   1.1089    -0.018
 Seven-year note               101-224/256  1.2167    -0.012
 10-year note                  101-220/256  1.3004    -0.010
 30-year bond                  104-180/256  1.7963    -0.002
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         3.75         0.00    
 spread                                               
 U.S. 3-year dollar swap         1.50         0.25    
 spread                                               
 U.S. 5-year dollar swap         1.25         1.00    
 spread                                               
 U.S. 10-year dollar swap       -5.50         0.25    
 spread                                               
 U.S. 30-year dollar swap      -37.75         0.00    
 spread                                               
 
 (Reporting by Ross Kerber; Editing by David Gregori, Chris
Reese and Cynthia Osterman)
  
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