January 24, 2020 / 3:34 PM / a month ago

TREASURIES-U.S. yields fall as new virus continues to torment markets

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 24 (Reuters) - U.S. Treasury prices advanced
on Friday, pushing yields lower for a fourth straight session,
as the uncertainty surrounding the latest coronavirus from China
continued to undermine risk appetite and spur demand for
safe-haven assets.
    U.S. 30-years declined to fresh seven-week lows, while those
on benchmark 10-year notes dropped to new two-week troughs. 
    U.S. 10-year yields have lost nearly 13 basis points this
week, on track for its largest weekly drop in about 3-1/2
months. Thirty-year yields, on the other hand, have fallen
roughly 14 basis points this week, its biggest weekly decline in
four months.
    As rates fell, the yield curve flattened again on Friday as
market sentiment continued to take a hit amid a host of unknowns
about the Chinese coronavirus. The spread between the two-year
and 10-year note yields contracted to as low as 19.91 basis
points, the narrowest gap since mid-December.
    "The virus clearly in the short term has spooked the
market," said Gregory Faranello, head of U.S. rates at Amerivet
Securities in New York. "As a result, we have seen the grind
lower in the 10-year space to 1.70% and the flattening of the
yield curve."
    On Friday, China shut part of the Great Wall and suspended
public transport in 10 cities, stranding millions of people at
the start of the Lunar New Year holiday as authorities rush to
contain a virus that has killed 26 people and infected more than
800 already.
    That said, BMO Capital Markets believe that the Chinese
virus was far from being a pandemic health crisis.
    "The chance of a sharp drop in economic activity due to the
illness remains a low-odds tail risk, but one with an admittedly
non-zero probability," BMO Capital wrote in a research note.
    This, it added, could open the door for a "quick retracement
back to the center of the range if the angst appears unfounded."
    In morning trading, U.S. 10-year yields fell to
1.701%, from 1.739% late on Thursday. Earlier in the session,
10-year yields fell to two-week lows of 1.699%.
    BMO said 1.70% and 1.90% in 10-year yields represent
"identifiable parameters" ahead of next week's Federal Reserve
policy meeting, which many consider to be a non-event given that
the Fed is expected to be on hold for some time. 
    Yields on U.S. 30-year bonds were at 2.147%,
down from 2.182% on Thursday. Thirty-year yields earlier fell to
seven-week troughs of 2.146%.
    On the short end of the curve, U.S. two-year yields fell to
1.498% from Wednesday's 1.518%.
    
    January 24 Friday 10:24 AM New York/1524 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.5225       1.5536    -0.002
 Six-month bills               1.5225       1.5596    -0.002
 Two-year note                 100-61/256   1.4988    -0.019
 Three-year note               100-10/256   1.4864    -0.027
 Five-year note                101-24/256   1.5186    -0.036
 Seven-year note               100-216/256  1.6206    -0.038
 10-year note                  100-112/256  1.7012    -0.038
 30-year bond                  105          2.1469    -0.035
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         5.50        -0.75    
 spread                                               
 U.S. 3-year dollar swap         2.75        -0.75    
 spread                                               
 U.S. 5-year dollar swap         0.00        -0.50    
 spread                                               
 U.S. 10-year dollar swap       -5.75        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -32.25        -0.75    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan
Oatis)
  
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