Investors recovered US Treasury bills, which drove yields down sharply as traders noted the increasing number of COVID-19 cases outside of China’s borders, raising concerns that a Wider contagion could weigh on Asian regional economies.
What motivates Treasurys?
The yield on 10-year treasury bills
TMUBMUSD10Y,
fell 4.5 basis points to 1.524%, while the 2-year rate
TMUBMUSD02Y,
down 3.1 basis points to 1.393%. The bond yield at 30 years
TMUBMUSD30Y,
slipped 4.4 basis points to 1.971%, just 2 basis points from its all-time low of 1.95% last September.
The gap between the invoice at 3 months
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and the yield on 10-year notes became negative again, reversing the so-called yield curve. A reversal along this measure is seen as a prelude to a recession, but some analysts have argued that it is not clear how long it takes after the reversal before an economic downturn.
What motivates Treasurys?
Investors may have been shaken 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, local health officials said. . And two passengers from a quarantined cruise ship in Japan died from the coronavirus.
These concerns have helped to attract entries into government paper at the expense of risky assets. Market watchers, however, warned that there was no clear reason for Thursday’s sharp sale of stocks, which saw US stock indexes retreat from all-time highs.
There are at least 75,000 confirmed cases of COVID-19 and more than 2,100 deaths, mostly in mainland China, according to the latest figures from the World Health Organization.
Data showed China was boosting credit flows before coronavirus froze industrial activity in the world’s second largest economy, People’s Bank of China reports Chinese loan growth jumped 12.1% from year to year in January. Recently, the Chinese central bank created a new loan program offering cheap credit to companies whose operations have been disrupted by the coronavirus.
China’s central bank cut its one-year key rate by 10 basis points to 4.05% on Thursday.
In economic data, initial unemployment claims in the United States increased from 4,000 to 210,000. Meanwhile, the Philadelphia Fed manufacturing index hit 36.7 in February, its highest result in three. years. The Conference Board’s reading of its index of leading economic indicators in January rose 0.8%.
Federal Reserve Vice President Richard Clarida said the economic outlook in the United States still looks good. He also said that the central bank would monitor the coronavirus, but that it was still too early to assess the overall impact of the virus on growth.
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What did market players say?
“We are still trying to assess the extent and longevity of the coronavirus,” said Maura Murphy, portfolio manager at Loomis Sayles, in an interview.
From the lack of inflation expectations written into long-term treasury bills, she added that the weakness of raw materials due to global growth problems has offset concerns about supply shortages linked to slower production in China.
