Bond Report: 10-year Treasury yield pushes below 1.30%, falling further into record territory

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Treasury yields extended their drop into record territory on Thursday as jitters around COVID-19 spreading within the U.S., drew investors away from stocks to the benefit of bonds, with more new cases of the virus reported outside China than inside.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -4.37%   was down 2.1 basis points to 1.289%, setting an all-time low, while the 2-year note rate TMUBMUSD02Y, -7.42%   slipped 4.2 basis points to 1.103%. The 30-year bond yield TMUBMUSD30Y, -3.34%   edged 2.3 basis points lower to 1.775%, also a new record low. Bond prices move in the opposite direction of yields.

What’s driving Treasurys?

An official from the Food and Drug Administration said COVID-19 was on its way to becoming a pandemic, and a confirmed case of the coronavirus in California that had no history of travel have raised worries that the virus could be spreading despite the travel restrictions imposed on China.

Also supporting bullish sentiment in Treasurys, Microsoft warned that the supply chain disruptions from the virus would have an impact on sales.

Futures for the S&P 500 SPX, -0.38%   and the Dow Jones Industrial Average DJIA, -0.46%   point to a lower open for U.S. stocks on Thursday. The broad-based S&P 500 benchmark is down 6.6% this week.

The potential for a spillover into the U.S. has heightened expectations for the Federal Reserve to ease monetary policy, on top of the three interest rate cuts the central bank carried out last year. Traders wagering on the direction of the Fed’s benchmark interest rate in the fed fund futures market see close to a 50% chance of a quarter percentage point rate cut in March, according to the CME Group.

On the U.S. economics docket, weekly jobless claims, January durable goods and fourth-quarter gross domestic product data are all due at 8:30 a.m. ET, followed by last month pending home sales data at 10 a.m. Chicago Fed President Charles Evans will speak later at 11:30 a.m.

See: Dow futures down 250 points as spread of coronavirus fuels stock-market selloff

Read: Bank of America forecasts global growth to be worst since financial crisis

What did market participants’ say?

“An increase in the number of newly reported COVID-19 cases outside of China (and the first “community spread” case in the US – i.e. where the individual had no relevant travel history or exposure to a known COVID-19 patient) has weighed on sentiment,” wrote Mark Chandler, a rates strategist for RBC Capital Markets.

“It is hard to imagine the day ahead will not be dominated by newsflow on the virus, with data offerings relatively light,” said Chandler.

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