Bonds News

TREASURIES-Yields tick down as traders balance virus, economic reports

 (Updates with market activity, 30-year auction results)
    By Ross Kerber
    BOSTON, Feb 13 (Reuters) - U.S. Treasury yields were
slightly lower on Thursday as traders balanced worsening news
about the coronavirus epidemic in China with positive U.S.
economic reports.
    The benchmark 10-year yield was down 1.8 basis
points in afternoon trading at 1.6087%. A strong auction of
30-year bonds at 1 p.m. (1800 GMT) also showed continued demand.
    The trading was part of a broader reaction to a sharp rise
in the number of coronavirus deaths and infections reported in
China, which unnerved world markets on Thursday and interrupted
the rally in stocks while boosting the prices of U.S. government
bonds and gold, which are considered safe havens.
    But positive economic data, such as consumer prices,
prevented yields from falling further, said Andrew Richman,
director of fixed income strategies at SunTrust Advisory
Services, as investors bet against an extreme economic impact
from the epidemic.
    "The U.S. is certainly not in a recession, Europe isn't
getting any worse, and that's balancing out this terrible news
from China," Richman said. 
    In the 1 p.m. action, the U.S. Treasury sold $19 billion
worth of 30-year bonds at a high yield of 2.061%, a record low
for such auctions.
    BMO Capital Markets analyst Ben Jeffery said the result
showed how traders did not hesitate to buy up the bonds, in line
with equally strong demand for shorter-dated auctions earlier
this week.
    "The record low is really a testament to how monetary policy
and growth expectations have shifted," he said. "The fact that
interest rates are so low, and that there's still record demand,
supports the argument there is going to continue to be a
structural demand for Treasuries," he said. 
    The eventual impact of the coronavirus remains to be seen.
Experts, including several affiliated with the National
Association for Business Economics, have emphasized the many
unknowns that remain, such as the disease's incubation period
and fatality rates.
    In Hubei province in central China, officials said 242
people died on Wednesday, the biggest daily rise since the
flu-like virus emerged in the provincial capital Wuhan in
December. Total deaths in China were reported at 1,367. The
province recorded thousands more infections, but that appeared
to be largely due to a new counting method.
    Separately, U.S. underlying consumer prices picked up in
January as households paid more for rents and clothing,
supporting the Federal Reserve's contention that inflation would
gradually rise toward its 2% target.
    The Labor Department said on Thursday its consumer price
index, excluding the volatile food and energy components, rose
0.2% last month after edging up 0.1% in December. The so-called
core CPI was up by an unrounded 0.2423% last month.       
    The two-year  U.S. Treasury yield, which
typically moves in step with interest rate expectations, was 
down less than a basis point at 1.4377% in afternoon trading.
      February 13 Thursday 2:21PM New York / 1921 GMT Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.5525       1.5845    0.007
 Six-month bills               1.5225       1.5598    0.003
 Two-year note                 99-225/256   1.4377    -0.004
 Three-year note               99-230/256   1.4098    -0.008
 Five-year note                99-184/256   1.4339    -0.011
 Seven-year note               99-204/256   1.5308    -0.014
 10-year note                  99           1.6087    -0.018
 30-year bond                  106-224/256  2.0645    -0.027
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         3.00        -1.00    
 U.S. 3-year dollar swap         1.75        -0.75    
 U.S. 5-year dollar swap        -0.25        -0.75    
 U.S. 10-year dollar swap       -5.25        -0.25    
 U.S. 30-year dollar swap      -32.50        -0.25    

 (Reporting by Ross Kerber in Boston; editing by Jonathan Oatis)