The 10-year U.S. Treasury note hit a record low yield on Tuesday as traders kept up the flight to safety on concerns the coronavirus epidemic would have a significant impact on global growth, coupled with soft U.S. economic data.
The benchmark 10-year yield was down 6.5 basis points in afternoon trading at 1.3121%, continuing declines from Monday and reaching as low as 1.3072% a little after 2 p.m. That was below its previous all-time low of 1.321% reached on July 6, 2016.
Yields on other treasuries were also down, as were major U.S. stock indexes as investors moved away from riskier assets.
U.S. health officials changed their tone and alerted Americans to begin preparing for the spread of coronavirus in the United States. [
Dozens of countries have accelerated emergency measures to curb the spread of the coronavirus, which has killed close to 2,700 in China - although the World Health Organization says the outbreak there has been declining since Feb. 2.
Even before the epidemic’s reach expanded, many traders had re-evaluated expectations for global growth in 2020, John Herrmann, director of U.S. rates strategy for MUFG Securities, said.
Fears of the outbreak accelerated a decline in yields on instruments such as the 10-year, which had been approaching 2% late last year, he said.
“People had started to dial down their expectations. The coronavirus just piled onto that as a giant risk-off trend,” Herrmann said.
The Conference Board said its consumer confidence index ticked up to a reading of 130.7 this month from a downwardly revised 130.4 in January. But economists polled by Reuters had forecast it edging up to 132.0 in February. The survey made no mention of the coronavirus.
Although the report could be read positively, Jefferies economist Tom Simons said investors might have been primed to see the downside. “If you’re looking for bad news, you can find it,” he said.
Trading volume on 10-year CBOE Treasury futures were set to be the highest since at least May 2018.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 8 basis points at 1.1858%.
On Tuesday afternoon the U.S. Treasury Department said it had accepted $40 billion in bids for 2-year notes, out of $98.2 billion worth of public bids tendered, at a high yield of 1.188% - the lowest since November of 2016.
Primary dealers accounted for 45% of competitive bids accepted, a relatively high level that might ordinarily could indicate weak demand for the instruments. But a continued decline in 2-year yields suggested a different trading dynamic, Simons said, and seemed to show traders looking for some type of action by the U.S. central bank.
Current rates on the 2-year, he said, “signal the market is pricing in a response from the Fed in some way.”