Bond Report: Treasury yields climb on easing coronavirus concerns as Powell outlines economic risks

Bond Report: Treasury yields climb on easing coronavirus concerns as Powell outlines economic risks

11 Feb    Finance News

U.S. Treasury yields traded higher on Tuesday as reports that the spread of COVID-19 may be slowing down helped to cheapen prices for government paper, drawing investors to the Treasury Department debt auction in the afternoon.

Federal Reserve Chairman Jerome Powell testified in front of the House Financial Services Committee, stating that the disease caused by a coronavirus strain that emerged in China in late 2019 presented a risk to the economy.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, +0.93%  climbed 4.5 basis points to 1.592%, while the 2-year note rate TMUBMUSD02Y, +0.86%  gained 4 basis points to 1.417%. The 30-year bond yield TMUBMUSD30Y, +0.28% ticked 3.5 basis points up to 2.056%.

What’s driving Treasurys?

Some investors attributed the positive investor sentiment and the weakening demand for Treasurys to talk that the infection rate has been steadily falling.

There are now 42,968 confirmed COVID-19 cases and at least 1,018 deaths, according to the World Health Organization. But the number of new, confirmed cases fell to 2,478 from 3,062 a day earlier, bringing the total to 42,638 on mainland China.

As part of the semiannual testimony in front of Congress, Fed’s Powell said he saw interest rates staying on hold but acknowledged the potential risk for the viral outbreak to weigh on the global economy. His remarks come as traders price in increased expectations of easier policy this year.

Live blog recap: Fed’s Powell talks to Congress about outlook for U.S. economy

On the data front, the U.S. job openings and labor turnover survey for December showed ob openings sank to 6.42 million, its lowest in two years. Meanwhile, the National Federation of Independent Business said its index of small-business optimism rebounded to 104.3 points in January from 102.7 in December.

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Read: Traders see outside chance of U.S. interest rate hitting rock bottom this year

Investors took down some debt supply in the afternoon. The U.S. Treasury auctioned $38 billion of 3-year notes, the first of three bond sales for this week. The uptick in yields on Tuesday helped to draw investor appetite for the securities, but the takeup was not strong enough to influence trading in the outstanding market.

What did market participants say?

“Barring any negative headlines about coronavirus, it is hard to see how the market rallies from here, but the opposite is also true,” wrote Thomas Simons, senior money market economist at Jefferies.

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