January 31, 2020 / 2:36 PM / 19 days ago

TREASURIES-Yields hold near three-month lows as virus concerns remain

    * Impact of Chinese coronavirus in focus
    * Treasury to give quarterly refunding plans next Wednesday
    * Heavy data scheduled next week, including monthly jobs

    By Karen Brettell
    NEW YORK, Jan 31 (Reuters) - U.S. Treasury yields held just
above three-month lows on Friday as investors evaluated the
economic impact of China’s spreading coronavirus, and before a
heavy week of economic data.
    The virus has spread to more than 20 countries and regions.
As of Friday China had reported 213 deaths and 9,800 cases, with
number of people infected surpassing the total during the
2002-2003 SARS epidemic.
    “We may have this underlying bid (for Treasuries) for some
time, just until more is known about the coronavirus; how much
it’s spread, the timeline, vaccines, etc.,” said Justin Lederer,
an interest rate strategist at Cantor Fitzgerald in New York.
    Benchmark 10-year note yields were last 1.555%,
after falling to 1.534% on Thursday, the lowest since Oct. 9.
    The yields have some technical support in the 1.50%-1.55%
area. They have dropped from 1.946% on Jan. 2.
    Traders are betting that the ongoing concerns about the
economic impact of the Chinese virus, and tepid inflation, could
lead the Federal Reserve to cut rates. The U.S. central bank
affirmed on Wednesday that it is on hold for the time being.

    Interest rate futures traders are pricing in a 72% chance of
at least one rate cut by September, according to the CME Group’s
FedWatch Tool.
    Two-year note yields, which are the most
sensitive to interest rate policy, fell to 1.367% on Thursday,
the lowest since Sept. 2017, before rebounding to 1.389% on
    The closely watched yield curve between three-month bills
and 10-year notes was flat on Friday, after inverting during two
days this week, in a bearish signal for the U.S. economy.
    That part of the yield curve inverted last March for the
first time since the financial crisis, signaling the potential
for a recession in a year or two.
    Some analysts and investors, however, think loose monetary
policy globally could result in any downturn taking longer to
materialize, making the signal less reliable than in the past.

    The Treasury Department on Wednesday will give its refunding
plan for the coming quarter, which will be of extra interest for
market participants since the government said earlier this month
that it plans to relaunch the 20-year bond.
    Next week will also feature a heavy schedule of data,
including Friday’s jobs report for January.
   January 31 Friday 9:14AM New York / 1414 GMT
                               Price        Current   Net Change
                                            Yield %   (bps)
 Three-month bills             1.5225       1.5536    -0.015
 Six-month bills               1.5225       1.5596    0.000
 Two-year note                 99-249/256   1.3889    -0.002
 Three-year note               100-102/256  1.3616    0.000
 Five-year note                100-2/256    1.3734    -0.004
 Seven-year note               100-48/256   1.4717    0.000
 10-year note                  101-196/256  1.5546    0.000
 30-year bond                  107-184/256  2.0284    0.002
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         5.25         0.00    
 U.S. 3-year dollar swap         2.25         0.00    
 U.S. 5-year dollar swap         0.00         0.00    
 U.S. 10-year dollar swap       -5.50         0.25    
 U.S. 30-year dollar swap      -33.00        -0.25    


 (Editing by David Gregorio and Nick Zieminski)
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