Bond Report: 10-year Treasury yield hits record low as coronavirus spreads beyond China

U.S. Treasury yields jumped off from their lows on Wednesday as a tentative recovery in stock-market futures helped to sap demand for haven assets like government paper.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, +0.86% was up 3.7 basis points to 1.367%, coming off its intraday record of 1.31% set on Tuesday. The 2-year note rate TMUBMUSD02Y, +0.54% edged 0.3 basis point lower to 1.188%, while the 30-year bond yield TMUBMUSD30Y, +1.62% climbed 5.2 basis points to 1.855%, also bouncing off its all-time low.

What’s driving Treasurys?

Government bonds have rallied on worries that the COVID-19 virus could dampen the global economy’s momentum, as the number of confirmed cases outside of China shoots higher. There are now 81,191 confirmed cases of COVID-19 and at least 2,768 deaths, according to a tally of cases published by the Johns Hopkins Whiting School of Engineering’s Centers for Systems Science and Engineering.

But as stocks attempt to recover from their back-to-back drop , inflows into Treasurys have slowed down, helping to push yields higher. Futures for the S&P 500 index SPX, -3.03% and the Dow Jones Industrial Average DJIA, -3.15% point to a higher open for Wall Street on Wednesday.

An auction for 10-year Treasury notes will indicate the extent of appetite for bonds yielding close to record lows. The sale for 2-year notes on Tuesday saw a tepid reception, adding to signs that investors may be reluctant to buy meager-yielding bonds even as many acknowledge the need for safe havens.

In U.S. economic data, new home sales for January are set to come out at 10:00 a.m. ET. MarketWatch-polled analysts forecast sales to run at an annualized pace of 722,000.

What did market participants’ say?

“Choppy trading conditions amidst heavy volumes are setting up a consequential Wednesday for global financial markets. In Treasurys, the dominating question will be whether the rally can meaningfully extend to new all-time low 10-year yields to something in the 1.00% to 1.25% zone,” said Jon Hill, an interest-rate strategist at BMO Capital Markets, in a Wednesday note.

“Caution should be in order. Fear is most prevalently priced into the Treasurys market, and then secondarily in the equity market,” said Steven Oh, global head of credit and fixed income for PineBridge, in an interview.