January 21, 2020 / 8:15 PM / a month ago

TREASURIES-U.S. yields sink on fears about China's new virus

    * U.S. 2-year, 10-year, 30-year yields fall to two-week lows
    * New cases on coronavirus surge to 300
    * Some strategists downplay virus economic impact
    * Trump's impeachment trial raises mild concern 

 (Adds new comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 21 (Reuters) - U.S. Treasury prices surged on
Tuesday, pushing yields lower as risk appetite dropped, amid
worries about the potential fallout from a lethal virus that has
broken out in China.
    U.S. two-year, 10-year, and 30-year yields fell to two-week
lows on the news.
    Wall Street shares struggled as well, as investors tried to
make sense of this new virus outbreak.
    Global officials confirmed that the coronavirus strain is
contagious between humans. The death toll from a mysterious
flu-like virus in China climbed to six on Tuesday as new cases
surged beyond 300.
    "The fear is that it could be a SARS-type event, which was
an economic issue," said Ellis Phifer, market strategist at
Raymond James in Tennessee. "But this is all cautionary. The
market is not panicking or anything."
    China's Severe Acute Respiratory Syndrome (SARS) outbreak
from 2002 to 2003 killed nearly 800 people.
    In afternoon trading, U.S. 10-year yields fell
to 1.769%, from 1.835% late on Friday. Earlier in the session,
two-year yields fell to two-week lows of 1.766%.
    U.S. financial markets were closed on Monday for the Martin
Luther King Jr holiday.
    Yields on U.S. 30-year bonds were at 2.229%,
down from 2.296% on Friday. Thirty-year yields also fell to
two-week troughs of 2.223%.
    On the short end of the curve, U.S. two-year yields fell to
two-week lows of 1.528% from Friday's 1.569%. They
were last at 1.532%.
    The yield curve flattened on Tuesday after steepening last
week, as global rates fell on caution about the Chinese
coronavirus. The spread between the two-year and 10-year note
yields narrowed to 23.38 basis points. 
    Oliver Jones, markets economist at Capital Economics in
London, suggested that events such as the latest virus scare
rarely have long-lasting and widespread effects on financial
markets.
    He noted that while SARS had clear economic and financial
impact in Asia when it hit in 2003, the effects were fairly
contained and did not last long.
    "With all of that in mind, for the time being we are not
altering any of our forecasts in response to the spread of the
new virus," Jones said.
    Meanwhile, U.S. President Donald Trump's impeachment trial
in the Senate, which began on Tuesday, has also caused some mild
jitters.
    Democrats have called on the Senate to remove the Republican
president from office, describing him as a danger to American
democracy and national security. Trump and his lawyers have
decried his impeachment, saying he has done nothing wrong and
that Democrats are simply trying to stop him from being
re-elected.
    "The impeachment trial is finally here," said Raymond James'
Phifer. "I don't think the concern is anything more than that.
Now that it's here, let's be a little cautious again."
    
      January 21 Tuesday 3:03 PM New York/2003 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.5125       1.5432    -0.018
 Six-month bills               1.5175       1.5543    -0.011
 Two-year note                 100-46/256   1.5304    -0.039
 Three-year note               99-232/256   1.5322    -0.049
 Five-year note                100-214/256  1.5734    -0.058
 Seven-year note               100-112/256  1.6829    -0.062
 10-year note                  99-212/256   1.7691    -0.066
 30-year bond                  103-36/256   2.2301    -0.066
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         7.50        -0.25    
 spread                                               
 U.S. 3-year dollar swap         4.25         0.00    
 spread                                               
 U.S. 5-year dollar swap         1.50         0.25    
 spread                                               
 U.S. 10-year dollar swap       -4.00         0.50    
 spread                                               
 U.S. 30-year dollar swap      -30.75         1.00    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Nick Zieminski and Lisa Shumaker)
  
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