Bond Report: 30-year Treasury bond yield breaks to all-time low as coronavirus fears lift havens

U.S. Treasury yields extended their weeklong slump on Friday as investors worried that the economic impact of COVID-19 may not be contained to China, and is spilling over into neighboring regions.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -3.79% was down 3 basis points to 1.495%, the lowest since last September, while the 2-year note rate TMUBMUSD02Y, -2.95% edged 1.4 basis points lower to 1.381%. The 30-year bond yield TMUBMUSD30Y, -3.17% slipped 4.2 basis points to 1.930%, falling below its previous all-time low of 1.95%.

What’s driving Treasurys?

Global equity benchmarks and U.S. stock futures fell Friday as the growing number of cases of the coronavirus outside China, especially in South Korea, raised fears that the damage to supply chains could hit several major Asian economies which are linchpins for industries like semiconductors and automobiles.

Investors also said it’s unclear when workers will be able to return to factory floors. Some forecasters suggest car manufacturing and other industries may not return to usual production activity until March.

The bearish investor sentiment in risk assets helped boost demand for haven bonds, which have seen sharp inflows all week. Long-term Treasury yields are on the verge or have already broken through key levels that investors say could presage further yield declines.

Worries about a Chinese and Asian economic slowdown spilling over into the U.S. have also lifted traders’ expectations for interest rate cuts later in the year, despite speeches by senior Federal Reserve officials including Fed Vice Chairman Richard Clarida suggesting no further easing was imminent.

Investors are awaiting a flurry of speeches from Fed officials again on Friday as U.S. central bankers attend a conference held by the University of Chicago Booth School of Business. Members of the Federal Open Market Committee who will give comments at the gathering include Fed Gov. Lael Brainard, Atlanta Fed President Raphael Bostic and Cleveland Fed President Loretta Mester.

In economic data, U.S. existing home sales for January are due at 10 a.m. ET. Economists polled by MarketWatch expect sales to run at annualized pace of 5.39 million, down slightly from 5.54 million in December.

Read: ‘Overprotected’ investors could get stung in the next recession, warns top Barclays strategist

What did market participants’ say?

“Yesterday’s risk-off tone has carried over into today, with Asian equities in the red and core bond yields falling on either side of the Atlantic,” said rates analysts at Rabobank, in a Friday note.

“Sustaining this move appear to be reports of a spike in coronavirus cases in South Korea and fears of an outbreak in Beijing,” they said.

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