Off The Wire
U.S. Treasury yields hit record lows as virus panic grips markets
LONDON, March 6 (Reuters) - Yields on long-dated U.S. Treasury bonds fell to record lows on Friday as concern that the coronavirus outbreak will hammer the world economy sent investors fleeing to assets seen as safe havens in turbulent times.
New milestones were set across the U.S. bond market, which has this week seen some of its biggest moves in years.
The 10-year Treasury yield fell to a record low of 0.695% and was last down 16 basis points (bps) on the day.
The 30-year Treasury yield dropped more than 20 bps to a record low of 1.28%. It was on course for its biggest daily fall since late 2011 during the depths of the euro zone sovereign debt crisis.
“The move in Treasuries reflects the increasing level of uncertainty out there - uncertainty over how far the coronavirus will spread and the impact that it will have on the economy,” said John Davies, G10 rates strategist at Standard Chartered Bank in London.
“We have entered uncharted territory for 10-year and 30-year Treasury yields and that plays into a volatile environment.”
Short-dated U.S. bonds racked up sizeable moves of their own, with two-year Treasury yields falling more than 10 basis points to 0.45%, their lowest since 2015.
Two-year bond yields have tumbled 87 bps in the past two weeks in their biggest two-week drop since 1987.
Coronavirus spread across the United States on Thursday, surfacing in at least four new states.
The prospect of a prolonged economic slowdown globally whacked equity markets and with a weekend looming, investors were heading to the relative safety of government bonds.
In Europe, British 10-year gilt yields fell to a record low. German Bund yields fell to within striking distance of record lows hit last September at the height of concern about the Sino-U.S. trade war.
The gap between 10-year U.S and German bond yields was about 143 bps - its tightest since 2016 - reflecting the bigger falls in U.S. Treasury yields.
Analysts said the fall in bond yields also reflected market concern that any central bank policy response may have a limited impact on preventing the virus from disrupting economic activity.
Earlier this week, the U.S. Federal Reserve delivered an emergency rate cut. Australian and Canadian central banks have also cut rates this week.
“There’s concern that while there has been a response from the Fed, given the nature of the problem, is this something the central bank can really help with?” said Davies at Standard Chartered.
Reporting by Dhara Ranasinghe; Editing by David Clarke