January 30, 2020 / 2:45 PM / 20 days ago

TREASURIES-Yields fall to 3-month lows as virus hits risk appetite

    * Coronavirus fears dent risk appetite
    * U.S. had slowest annual growth in three years in 2019

    By Karen Brettell
    NEW YORK, Jan 30 (Reuters) - U.S. Treasury yields dipped to
three-month lows on Thursday and a closely watched part of the
yield curve was briefly inverted as concerns about the economic
impact of a virus emanating in China weighed on risk appetite.
    The number of confirmed deaths from the virus in China has
climbed to 170 with 7,711 people infected, and more cases are
being reported around the world.
    “I think that the market is still pricing in some economic
weakness, some financial market weakness and general fear,
coming out of this coronavirus issue,” said Tom Simons, a money
market economist at Jefferies in New York.
    “There are still a lot of unknowns surrounding it, how
potentially serious the issue is, how widespread it is and what
the economic consequences really are,” Simons said.
    Benchmark 10-year note yields fell two basis
points to 1.57%. The yields got as low as 1.55% overnight, the
lowest since Oct. 10.
    The closely watched yield curve between three-month bills
and 10-year notes inverted for the second time this week, a
bearish signal for the 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 two-year to five-year yield curve was also
inverted. 
    Optimism had increased last October that growth would pick
up as the United States and China looked closer to reaching a
deal to de-escalate their trade war. The two countries signed
the first phase of the deal in January.
    Data on Thursday showed that the U.S. economy missed the
Trump administration's 3% growth target for a second straight
year, posting its slowest annual growth in three years in 2019
as the slump in business investment deepened amid damaging trade
tensions.
    Traders are betting that the ongoing concerns about the
economic impact of the Chinese virus could lead the Federal
Reserve to cut rates, even after it affirmed on Wednesday that
it is on hold for the time being.
    Interest rate futures traders are pricing in a 61% chance of
a rate cut by July, according to the CME Group’s FedWatch Tool.
    
      January 30 Thursday 9:33AM New York / 1433 GMT
    
    
                               Price        Current   Net Change
                                            Yield %   (bps)
 Three-month bills             1.5275       1.5589    -0.003
 Six-month bills               1.52         1.5572    -0.016
 Two-year note                 99-241/256   1.4048    -0.014
 Three-year note               100-88/256   1.3808    -0.019
 Five-year note                99-236/256   1.3912    -0.025
 Seven-year note               100-24/256   1.4858    -0.026
 10-year note                  101-156/256  1.5719    -0.022
 30-year bond                  107-128/256  2.0378    -0.013
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         5.25        -0.75    
 spread                                               
 U.S. 3-year dollar swap         1.75        -0.75    
 spread                                               
 U.S. 5-year dollar swap        -0.25        -0.25    
 spread                                               
 U.S. 10-year dollar swap       -5.50        -0.75    
 spread                                               
 U.S. 30-year dollar swap      -33.00        -1.50    
 spread                                               
 
 (Editing by David Gregorio)
  
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