Bond Report: Treasurys rally comes to halt as coronavirus fears abate

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U.S. Treasury yields struggled for direction on Wednesday as investors attempted to shake off fears the China’s coronavirus may spread to other countries and affect global economic growth

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -0.40%   was unchanged at 1.768%, while the 2-year note rate TMUBMUSD02Y, -0.54%   edged down 0.6 basis point to 1.524%, around its lowest levels in more than two weeks. The 30-year bond yield TMUBMUSD30Y, -0.79%   was down 1.3 basis point to 2.217%, its lowest since Dec. 3.

What’s driving Treasurys?

Fears that the coronavirus was at risk of turning into a global pandemic waned after Beijing’s strong response helped to allay concerns. Health officials in China shut down public transport in the city Wuhan, where the coronavirus had originated, and told the city’s residents to avoid travel. So far, more than 500 victims and 17 deaths have been reported, based on news reports.

See: Coronavirus infections have more than doubled. Here’s why the mysterious illness from China spreads so quickly

The report of the first case of the pathogen in the U.S. drove investors into Treasurys, pushing the 10-year benchmark yield down 6.6 basis points on Tuesday.

But analysts said they are tempted to see the spread of the coronavirus as a temporary blip unless it starts to show signs of endangering the U.S. and global economy, given that Treasurys and government bonds are ultimately driven by the path for inflation and economic growth.

The S&P 500 index SPX, +0.03%   and the Dow Jones Industrial Average DJIA, -0.03%  came off their intraday highs on Wednesday, but clung onto session gains.

In U.S. economic data, sales of existing homes jumped 3.6% in December, offering additional signs of the housing sector’s strength as mortgage rates have come down.

Last week, U.S. data showed that construction of new homes ran at a 1.61 million annualized pace, a 13-year high, helping to push stock-market benchmarks to records on Friday.

What did market participants’ say?

“For interest rates, [the coronavirus] is only an issue if it seems to be a long-term drag on growth,” said David Lafferty, chief investment strategist at Natixis, in an interview with MarketWatch.

“Treasuries trade well considering the reversal of equity markets higher, on concern regarding the coronavirus lessens, at least for the moment,” wrote analysts at NatWest Markets.

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