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U.S. Treasury yields fell sharply on Thursday as investors noted the growing number of COVID-19 cases outside of China’s borders, raising concerns that a broader contagion could weigh on regional Asian economies.
What’s driving Treasurys?
The 10-year Treasury note yield TMUBMUSD10Y, -1.47% fell 2.8 basis points to 1.542%, while the 2-year note rate TMUBMUSD02Y, -0.86% was down 2 basis points to 1.406%. The 30-year bond yield TMUBMUSD30Y, -1.38% slipped 3.1 basis points to 1.985%, a few basis points away from its all-time low of 1.95% set on last September.
The spread between the 3-month bill TMUBMUSD03M, -0.33% and the 10-year note yield turned negative again, inverting the so-called yield curve. An inversion along this measure is viewed as a prelude to a recession, but some analysts have argued that it’s unclear how long it takes after the inversion before an economic downturn.
What’s driving Treasurys?
Investors were rattled by the growing number of coronavirus cases outside of China, after the number of new cases in South Korea jumped to more than a hundred on Thursday, according to local health officials. And two passengers from a cruise ship quarantined in Japan died due to the coronavirus.
There are at least 75,000 confirmed cases of COVID-19 and more than 2,100 deaths, primarily in mainland China, according to the latest figures from the World Health Organization.
Data showed that China is pumping monetary stimulus to limit the impact of the coronavirus on the economy as the People’s Bank of China reported that Chinese loan growth had jumped by 12.1 year-over-year in January. Recently, the Chinese central bank has created a new lending program offering cheap credit to corporations whose operations have been disrupted by the coronavirus.
China’s central bank cut its one-year benchmark lending rate by 10 basis points to 4.05% on Thursday.
In economic data, U.S. initial jobless claims increased by 4,000 to 210,000. Meanwhile the Philadelphia Fed manufacturing index rose to 36.7 in February, its highest reading in three years.
The Conference Board’s January reading of its U.S. Leading Economic Indicator index is due at 10 a.m. ET.
Read: Goldman Sachs warns of imminent risk for stocks due to complacency on coronavirus
What did market participants’ say?
“The overnight trigger for a 3 basis point rally was the further spiral of COVID-19 outside China,” said Jim Vogel, an interest-rate strategist at FHN Financial, in a note.
