February 27, 2020 / 3:30 PM / a month ago

TREASURIES-Coronavirus worry sends yields to new lows; 10-year hits below 1.25%

 (Updates with market activity, Morgan Stanley comment, context)
    By Ross Kerber
    BOSTON, Feb 27 (Reuters) - U.S. Treasury yields continued to
decline on Thursday as  investors piled into the assets seen as
safe havens, with the yield on the benchmark 10-year note
reaching an all-time low for  the third consecutive day.
    The yield on the 10-year note was down 3.9 basis
points in morning trading at 1.2706%, after reaching as low as
1.2491%. 
    Yields on other treasuries also fell, including on the
30-year bond, which also hit a new low. Also the two-year note,
which typically moves in step with interest rate expectations,
was down 7.2 basis points in morning trading to 1.0734%, close
to its lowest since late 2016.
    Analysts said the rush to safety came as more coronavirus
cases were reported worldwide, drawing buyers for U.S.
government bonds 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.
    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
down steadily since January. 
    In a note to clients BMO head of U.S. rates strategy Ian
Lyngen wrote "the process of defining the lower bound for US
rates will continue for several weeks as pressure mounts for the
Fed to provide a policy response."
    Analysts will be focused on the results of an auction of
7-year notes by the U.S. Treasury later on Thursday.
    
      February 27 Thursday 9:58AM New York / 1458 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.4025       1.4309    -0.087
 Six-month bills               1.2825       1.3123    -0.101
 Two-year note                 100-26/256   1.0734    -0.072
 Three-year note               100-232/256  1.0636    -0.061
 Five-year note                100-60/256   1.0767    -0.050
 Seven-year note               102-20/256   1.1864    -0.043
 10-year note                  102-36/256   1.2706    -0.039
 30-year bond                  105-128/256  1.7629    -0.035
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         3.50        -0.25    
 spread                                               
 U.S. 3-year dollar swap         0.75        -0.50    
 spread                                               
 U.S. 5-year dollar swap         0.75         0.50    
 spread                                               
 U.S. 10-year dollar swap       -6.25        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -38.25        -0.50    
 spread                                               
 
 (Reporting by Ross Kerber)
  
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