Bond Report: Treasury market takes a breather from relentless rally, stopping short of record

U.S. Treasury yields hanged near break-even levels on Tuesday a day after the benchmark maturity came perilously near breaching its all-time low amid heightened concerns around the COVID-19 outbreak.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -0.67% edged 0.2 basis point higher to 1.379%, less than a few basis points away from its all-time intraday low of 1.32% set on June 2016, while the 2-year note rate TMUBMUSD02Y, -0.34% held its ground at around 1.264%. The 30-year bond yield TMUBMUSD30Y, -0.22% rose 0.8 basis point to 1.844%.

What’s Treasurys doing?

Worries around the coronavirus continued to dominate the attention of market participants who dived into government paper in recent sessions to take shelter from the turbulence in risk assets. The potential for the virus to freeze economic activity beyond China’s borders and upend global supply chains have kept investors across the world on edge.

U.S. equities were set to pare some of their losses from Monday, when the S&P 500 SPX, -3.35% index and the Dow Jones Industrial Average DJIA, -3.56% suffered their biggest one-day percentage declines since Feb. 8, 2018.

See: The 10-year Treasury yield is sliding toward its all-time low — here’s why

On the docket, the U.S. Case-Shiller home price index for December will come out at 9 a.m. ET, followed by a February consumer confidence index at 10 a.m. Federal Reserve Vice Chairman Richard Clarida is set to speak later at 3 p.m.

The U.S. Treasury Department will kick off its week of auctions with a sale of 2-year notes in the afternoon. The searing slide in bond rates could test the demand of income-hungry investors, but there have been few signs of resistance to the scarce yields sported by Treasurys, so far.

Opinion: If the coronavirus isn’t contained, a severe global recession is almost certain

What did market participants’ say?

“Within the context of virus concerns, there are two forces impacting duration markets right now. The first is the probability of a slowing in economic growth that could lead to a recession and, therefore, impact the pricing of future short-rates,” wrote Ian Pollick, head of North American rates strategy at CIBC.

“The second is the degree to which cross-assets are influencing one another. If the virus materially raises the likelihood of a sustained economic slowing, the imputed probability of a recession rises and increases the risk that central banks turn generous once again,” said Pollick.