March 6, 2020 / 9:12 PM / 24 days ago

TREASURIES-U.S. yields on long bonds hit record lows as virus fears spike

    * Strong U.S. jobs report fails to ease coronavirus fears
    * Rate futures price near zero rates by April
    * New milestones set across bond market
    * Coronavirus infections hit more than 100,000 globally
-Reuters

 (Adds comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, March 6 (Reuters) - U.S. Treasury prices surged on
Friday, pushing long-dated yields to record lows, as worries
that the coronavirus outbreak will hammer the world economy sent
investors fleeing to assets seen as safe havens in turbulent
times. 
    A strong U.S. payrolls report did little to lift sentiment.
Nonfarm payrolls increased by 273,000 jobs in February, matching
the prior month's tally, which was the largest since May 2018.
The data also showed that the economy created 85,000 more jobs
in December and January than previously reported.
    But escalating market panic over the coronavirus dominated.
More than 100,000 people globally have been infected, according
to a Reuters tally. That number could rise as more people get
tested.
    Futures traders bet the Federal Reserve will slash U.S.
interest rates to near zero by April. The Fed, which at an
emergency meeting on Tuesday cut its target range to between
1.00% and 1.25%, will hold its next regularly scheduled policy
meeting March 17-18. 
    "The bond market is already pricing in a worst-case
scenario, a U.S. and global recession in 2020 with emergency
monetary stimulus from the Fed to help cushion the fall," said
Scott Anderson, chief economist at Bank of the West in San
Francisco. "The flatness of the yield curve at the long-end
suggests the market believes the Fed's efforts to avert a
recession will be unsuccessful."
    After steepening following Tuesday's 50 basis-point rate
cut, the yield curve flattened with the spread between two-year
and 10-year note yields at 25 basis points.
    New milestones were set across the U.S. bond market, which
this week has seen some of its biggest moves in years. 
    The 10-year Treasury yield fell to a record low of 0.66%
 and was last down at 0.749%.
    The 30-year Treasury yield dropped more than 30 basis points
to a record low of 1.187% and was last at 1.276%.
The 30-year yield also had its biggest daily fall since
September 2008. 
    Short-dated U.S. Treasuries also racked up sizable moves,
with two-year yields falling 8 basis points to 0.394%
, the lowest level since October 2014. They were last
at 0.5%. Two-year yields have tumbled 83 basis points in the
past two weeks in their biggest two-week drop since 1987.
    "We think we haven't seen the bottom yet," said Tony
Rodriguez, head of fixed-income strategy at Nuveen in
Minneapolis. He said investors were trading blind because it is
hard to gauge the risk the virus poses to the economy. 
    "Absent better news on the virus, they (Fed) will cut
(another) 50 basis points and get to zero over the next couple
of months," Rodriguez said.  
    The prospect of a prolonged global economic slowdown smacked
equity markets, and with a weekend looming, investors headed for
the relative safety of government bonds. 
    
          March 6 Friday 3:44PM New York/2044 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.4975       0.5064    -0.119
 Six-month bills               0.4          0.4064    -0.112
 Two-year note                 101-59/256   0.4983    -0.087
 Three-year note               102-110/256  0.5399    -0.076
 Five-year note                102-160/256  0.5889    -0.084
 Seven-year note               102-234/256  0.6963    -0.125
 10-year note                  107-52/256   0.7465    -0.178
 30-year bond                  118-48/256   1.268     -0.302
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        13.75         6.75    
 spread                                               
 U.S. 3-year dollar swap        11.25         6.50    
 spread                                               
 U.S. 5-year dollar swap        11.25         5.25    
 spread                                               
 U.S. 10-year dollar swap        6.50         6.75    
 spread                                               
 U.S. 30-year dollar swap      -35.25         5.25    
 spread                                               
 
    
 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by
Karen Pierog; Editing by David Gregorio and Leslie Adler)
  
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