February 25, 2020 / 9:38 PM / a month ago

TREASURIES-Virus fears send Treasury yields to record lows

 (Adds market activity, home price data, analyst comment)
    By Ross Kerber
    BOSTON, Feb 25 (Reuters) - The benchmark 10-year U.S.
Treasury note hit a record low yield on Tuesday as investors
kept up the previous session's flight to safety, buying
Treasuries on mounting worries the coronavirus epidemic might
slam global economic growth.
    The 10-year yield was down 4.5 basis points in
afternoon trading at 1.3321%. It fell as low as 1.3072%, below
its previous record of 1.321% reached on July 6, 2016.
 The 30-year bond yield also touched a
record low and yields on other treasuries declined while U.S.
stock indexes sank. 
    U.S. health officials alerted Americans to begin preparing
for the spread of coronavirus. Analysts said
investors were buying up Treasuries for perceived safety even if
yields are low.
    Treasuries have become "like a black hole sucking in
liquidity all over the world because people don’t know how bad
the coronavirus is going to get," said Don Ellenberger, head of
multisector strategies at Federated Hermes.
    "It's a market that’s not concerned about value right now,
it's concerned about safety," he said.
    Dozens of countries have accelerated emergency measures to
curb the spread of the coronavirus, which has killed close to
2,700 in China - although the World Health Organization says the
outbreak there has been declining.
    Even before the epidemic's reach expanded, many traders had
re-evaluated expectations for global growth in 2020, John
Herrmann, director of U.S. rates strategy for MUFG Securities,
said. He noted that yields on the 10-year had been approaching
2% late last year.
    "People had started to dial down their expectations. The 
coronavirus just piled onto that as a giant risk-off trend,"
Herrmann said. 
    In economic data, a closely watched index showed U.S. metro
area home prices rose 2.9% in December from a year earlier,
slightly above expectations. The Conference Board
said its consumer confidence index ticked up to a reading of
130.7 this month from a downwardly revised 130.4 in January.
Economists polled by Reuters had forecast it edging up to 132.0
in February.
    While the report could be read positively, Jefferies
economist Tom Simons said: "If you're looking for bad news, you
can find it."
    Trading volume on 10-year CBOE Treasury futures were set to
be the highest since at least May 2018.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was down 5.4 
basis points at 1.2125%.
    On Tuesday afternoon the U.S. Treasury Department said it
had accepted $40 billion in bids for 2-year notes, out of $98.2
billion worth of public bids tendered, at a high yield of 1.188%
- the lowest since November of 2016.
    Primary dealers accounted for 45% of competitive bids
accepted, a relatively high level that might ordinarily indicate
weak demand for the instruments. But Simons said a continued
decline in 2-year yields seemed to show traders looking for the
U.S. central bank to act.
    "The market is pricing in a response from the Fed in some
way," he said.
    
      February 25 Tuesday 4:02PM New York / 2102 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.5025       1.5334    -0.008
 Six-month bills               1.4225       1.4567    -0.023
 Two-year note                 100-79/256   1.2125    -0.054
 Three-year note               100-158/256  1.1629    -0.056
 Five-year note                101-4/256    1.1623    -0.056
 Seven-year note               101-160/256  1.2543    -0.050
 10-year note                  101-144/256  1.3321    -0.045
 30-year bond                  104-156/256  1.8003    -0.036
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         1.25         0.50    
 spread                                               
 U.S. 3-year dollar swap         0.50         0.75    
 spread                                               
 U.S. 5-year dollar swap        -0.50         1.50    
 spread                                               
 U.S. 10-year dollar swap       -6.75         0.75    
 spread                                               
 U.S. 30-year dollar swap      -38.75        -0.75    
 spread                                               
 
 (Reporting by Ross Kerber in Boston; additional reporting by
David Randall in New York. Editing by Tom Brown, Alison Williams
and David Gregorio)
  
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