By Sunny Oh
Treasury yields were seeing a precipitous drop on Monday as panic in global stock-markets over the COVID-19 outbreak has driven inflows into U.S. government paper, one of the most popular haven assets for investors here and abroad.
What are Treasurys doing?
The 10-year Treasury note yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y 0.00% slid 9.3 basis points to 1.377%, its lowest since July 2016, while the 2-year note rate /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y 0.00% dropped 6.3 basis points to 1.287%. The 30-year bond yield /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y 0.00% tumbled 6.8 basis points to 1.849%.
If the benchmark 10-year rate falls a few more basis points, it will surpass the previous all-time closing low of 1.32% set on June 2016. Bond prices move in the opposite direction of yields.
What’s driving Treasurys?
U.S. stocks, along with European and Asian equities, unraveled to kick off the week’s trading, driving investors to the perceived safety of bonds. The S&P 500 /zigman2/quotes/210599714/realtime SPX -1.51% and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -1.69% fell around 3% on Monday, marking their biggest one-day selloff since Dec. 2018.
This comes as the rapidly rising number of confirmed cases of COVID-19 in Italy, Iran and South Korea have raised fears that the virus epidemic could turn into a global pandemic. The spread to Italy and South Korea, two major developed economies, have added to overseas growth concerns.
There are now 79,339 cases of COVID-19—the infectious disease derived from the novel strain of coronavirus that reportedly originated in Wuhan, China last year— in 30 countries and 2,619 deaths, according to the latest figures from the World Health Organization.
Expectations for disruptions in global supply chains run high as transportation links in Asia are shut down and factory production lines struggle to return to full-capacity.
The International Monetary Fund said on Saturday the coronavirus would trim 0.1% off global growth, and lower China’s economic growth rate to 5.6% this year.
The slide in long-term bond yields also reflects the surge in betting on the Federal Reserve to ease monetary policy this year. Pricing in fed-fund futures markets, which reflects market expectations for coming rates, show expectations for a half-a-percentage-point worth of cuts in 2020.
Cleveland Fed President Loretta Mester said she saw the coronavirus as a risk to the outlook, but didn’t see the need for additional rate cuts.
What did market participants’ say?
“Today’s Treasurys rally is a result of several factors. You have the global spread of the coronavirus into Italy, one of the biggest developed economies in the eurozone. Then you have Korea, which is a barometer of global growth,” said Tracy Chen, a portfolio manager at Brandywine Global, in an interview.
“Low Treasury yields are not just indicating slower growth in the U.S., but slower global growth,” she said.