January 30, 2020 / 8:00 PM / 20 days ago

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

 (Adds 30-year yields, updates prices)
    * Coronavirus fears dent risk appetite
    * U.S. had slowest annual growth in three years in 2019
    * Trades increase bets on Fed rate cuts this year

    By Karen Brettell
    NEW YORK, Jan 30 (Reuters) - U.S. Treasury yields fell to
three-month lows on Thursday and a closely watched part of the
yield curve 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 as low as
1.534%, the lowest since Oct. 9.
    The closely watched yield curve between three-month bills
and 10-year notes inverted for the second day 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.

    Demand for higher yields and concerns over the longer-term
growth and inflation picture have driven the yield curve flatter
for the past decade.
    Thirty-year bond yields fell to 2.01% on
Thursday. They are approaching an all time low of 1.905% set in
    Other shorter-dated parts of the yield curve including the
two-year and five-year portion were also inverted.
    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.

    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 64% chance of
at least one rate cut by July, according to the CME Group’s
FedWatch Tool.
      January 30 Thursday 2:47PM New York / 1947 GMT
                               Price        Current   Net Change
                                            Yield %   (bps)
 Three-month bills             1.5375       1.5692    0.007
 Six-month bills               1.52         1.5572    -0.016
 Two-year note                 99-253/256   1.381     -0.038
 Three-year note               100-106/256  1.3565    -0.043
 Five-year note                100-8/256    1.3685    -0.048
 Seven-year note               100-62/256   1.4635    -0.048
 10-year note                  101-216/256  1.5462    -0.048
 30-year bond                  108-12/256   2.0144    -0.037
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         5.25        -0.75    
 U.S. 3-year dollar swap         2.00        -0.50    
 U.S. 5-year dollar swap        -0.25        -0.25    
 U.S. 10-year dollar swap       -5.75        -1.00    
 U.S. 30-year dollar swap      -32.75        -1.25    


 (Editing by David Gregorio and Nick Zieminski)
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