U.S. Treasury bonds rallied Wednesday afternoon as the accelerating spread of COVID-19 outside of China kept investors on edge, preventing a selloff in government bonds even as stocks looked to claw back from their worst back-to-back losses in several years.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, -1.54% was virtually unchanged at 1.332%, after climbing as high as 1.382% earlier in the day. The 2-year note rate TMUBMUSD02Y, -1.79% was down 2.2 basis points to 1.169%, while the 30-year bond yield TMUBMUSD30Y, +0.38% rose 1.5 basis points to 1.181%.
What’s driving Treasurys?
Government bonds have rallied on worries that the COVID-19 virus could dampen the global economy’s momentum, as the number of confirmed cases outside of China shoots higher. German Health Minister Jens Spah said the largest economy in the eurozone was now looking at “the beginning of a coronavirus epidemic.”
There are now 81,245 confirmed cases of COVID-19 and at least 2,770 deaths, according to a tally of cases published by the Johns Hopkins Whiting School of Engineering’s Centers for Systems Science and Engineering.
See: The bond market will be reacting to coronavirus for months, this analysis finds
President Donald Trump will hold a news conference on the coronavirus at 6 p.m. Eastern.
While stocks were attempting to recover from their worst back-to-back drop in years, Treasurys were struggling to extend their rally. The S&P 500 index SPX, -0.38% and the Dow Jones Industrial Average DJIA, -0.46% were clinging to modest gains on afternoon trade Wednesday.
An auction for 5-year Treasury notes in the afternoon saw lackluster demand, but the weak results were not enough to drag yields higher. Bond prices move in the opposite direction of yields. A similar result followed a sale of 2-year notes on Tuesday, suggesting that investors may be reluctant to buy meager-yielding bonds, even as many point to a need for liquid, safe assets.
In economic data, U.S. new home sales soared 7.9% in January to an annualized pace of 764,000, well above the consensus estimate of 722,000. Low mortgage rates have helped to lift home-buying activity.
What did market participants’ say?
“Caution should be in order. Fear is most prevalently priced into the Treasurys market, and then secondarily in the equity market,” said Steven Oh, global head of credit and fixed income for PineBridge, in a MarketWatch interview.
“Positioning is not stretched too far to keep the bond market from continuing to rally,” Michael Lorizio, senior fixed income trader at Manulife Asset Management, told MarketWatch.