The 10-year Treasury yield turned lower on Wednesday after an initial bump higher, falling to a new record low amid heightened fears about the fast-spreading coronavirus and its effect on the global economy.
The yield on the benchmark 10-year Treasury note, which moves inversely to price, fell four basis points to a 1.302%, just below its last record low reached on Tuesday of 1.307%. The benchmark yield was about 3 basis points higher earlier in the session. The yield on the 30-year Treasury bond was also lower at 1.807%, near its record low.
Investors sought the safety of U.S. government debt and fled riskier assets on fears that the deadly coronavirus will disrupt the global economy growth. The S&P 500 posted back-to-back losses of more than 3% this week, suffering its biggest two-day plunge since 2015.
Yields extended its losses after the U.S. Food and Drug Administration said the coronavirus is on the cusp of becoming a pandemic. The U.S. Centers for Disease Control and Prevention has also warned Americans to prepare for the virus to arrive stateside.
Solid economic data on Wednesday did little to lift yields. New home sales jumped 7.9% to a seasonally adjusted annual rate of 764,000 units last month, the highest level since July 2007.
The benchmark 10-year yield has tumbled 20 basis points this month alone, and 60 basis points this year so far.
New coronavirus cases have emerged across Europe, most recently in Austria, Switzerland and Spain, while the virus spread south in Italy to take the country’s death toll to 11, with new cases surpassing 320.
South Korea has reported 169 new cases of the virus, taking its total to 1,146 with 11 fatalities, while a U.S. soldier stationed in the country has also tested positive. Total confirmed cases globally have surpassed 80,200 with at least 2,704 deaths.
The two-year yield hit a low of 1.136% on Wednesday, its lowest level since Feb. 2017. The short-duration rate is the most sensitive to Federal Reserve’s monetary policy expectations. Traders have increasingly priced in a rate reduction at the central bank’s April meeting.
“Expectations the Fed will be forced to cut relatively soon are leading to a re-resteepening impulse,” Ian Lyngen, BMO’s head of U.S. rates, said in a note on Wednesday.
The fed funds futures market is assigning a near 60% chance of a rate cut at the Fed’s April policy meeting, according to the CME FedWatch Tool. Traders also see the possibility of three cuts in 2020.