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U.S. Treasury yields slumped on Friday to cap off their weeklong slide after concerns about the economic impact of China’s coronavirus epidemic resurfaced, driving investors back into government paper at the expense of stocks.
What are Treasurys doing?
The 10-year Treasury yield TMUBMUSD10Y, -5.02% fell 3.8 basis points to 1.521%, its lowest since Oct. 4. The benchmark yield slumped 15.9 basis points this week, its biggest such move since early October, and dropped 38.8 basis points in January.
The 2-year note yield TMUBMUSD02Y, -7.00% was down 6.4 basis points to 1.329%, its lowest since Sept. 2017. The short-dated maturity fell 15.5 basis points this week, and 23 basis points in the past month. The 30-year bond rate TMUBMUSD30Y, -2.74% edged 1.6 basis points lower to a more than four month low of 2.012%. The long bond fell 11.6 basis points this week, and 36.6 basis points in January.
What’s driving Treasurys?
The World Health Organization declared the coronavirus epidemic a global health emergency on Thursday and initially calmed some investor nerves by praising Beijing’s efforts to contain the outbreak and opposing travel or trade restrictions with China to limit its impact.
But the U.S. contradicted the international agency and advised against all travel to the world’s second largest economy. At least 213 people have died and about 9,700 have been sickened by the novel coronavirus, according to the latest figures from China’s National Health Commission.
Read: Here’s the daring way Europe’s largest fund manager is reacting to the coronavirus outbreak
In economic data, U.S. consumer spending rose modestly in December, but the increase in outlays in 2019 was the smallest in three years, the government reported. Fourth-quarter employment costs in the U.S. rose 0.7% in the fourth quarter, but the increase in wage and benefits for the full year of 2019 slowed to a 2.7% pace.
The January Chicago purchasing manager index slumped to 42.9, from the previous month’s 48.9, an indication of the lingering weakness in manufacturing.
As for the Federal Reserve, Fed Vice Chairman Richard Clarida said he was not worried about the inverted yield curve in an interview on Bloomberg Television.
The spread between the 10-year note rate and the 3-month bill TMUBMUSD03M, -0.67% inverted to trade at a negative 2 basis points on Friday. An inversion of that gap has historically preceded an economic downturn.
See: Inverted U.S. yield curve points to renewed worries about global economic health
What did market participants’ say?
“Efforts to contain the virus will have negative implications for global growth. We will not see this rally in Treasuries abate any time soon,” wrote Ward McCarthy, chief financial economist for Jefferies.
