Virus fears push yields on long-dated US Treasuries to new low

The US 30-year bond yield tumbled to an all-time low on Friday as intensifying fears over the spread of coronavirus outside China sent investors rushing to safe assets and prompted fresh warnings from global health officials.

The yield on long-dated US Treasuries dipped below 1.9 per cent amid a global bond rally, with investors betting that the economic impact of the virus could drive the Federal Reserve to cut interest rates this year.

“We are now expecting the coronavirus to have a longer impact on global growth,” said Dickie Hodges, a portfolio manager at Nomura Asset Management, who has a quarter of his fund in US government bonds. “The US is one of the few places that has room to cut rates, and I think they will cut at least twice this year. In that environment you want to own Treasuries.”

The yield on the US 30-year bond fell to a low of 1.89 per cent on Friday before ending the day back above 1.9 per cent mark by the end of the trading day. The yield on the US 10-year bond was down 5.2 basis points to 1.473 per cent. Yields move inversely to price.

Investors adopting a defensive stance also sought the safety of gold. Gold jumped 1.5 per cent to $1,643.51 a troy ounce on Friday, having hit its highest level in seven years earlier in the session.

Equities were sold off, with the S&P 500 closing down 1 per cent on Friday for a weekly decline of 1.3 per cent while the Dow and Nasdaq Composite fell 1.4 per cent and 1.6 per cent respectively.

The flight to safety came as South Korea imposed emergency restrictions on one of its biggest cities and a nearby town, the latest in a series of increasingly severe measures by governments struggling to contain the deadly coronavirus.

After Seoul officials asked residents of Daegu, the country’s fourth-biggest city, to stay confined to their homes, the World Health Organization sounded a warning over sharp increases in infections in South Korea and Iran. It also flagged concerns over Shandong province in eastern China despite a declining number of cases in Hubei, the centre of the outbreak.

“We are still in a phase where containment is possible but with a narrowing window of opportunity,” said Tedros Adhanom Ghebreyesus, director-general of the WHO.

The respiratory illness, which experts believe originated from Wuhan in December last year, has now killed more than 2,300 people. Globally nearly 78,000 cases have been confirmed, with China accounting for more than 76,000.

Seoul on Friday reported 100 new cases of the Covid-19 virus, including 90 cases traced to a religious sect in Daegu, making South Korea the worst-hit country outside China. Daegu authorities said more than 400 church members of 3,000 surveyed in the city were showing symptoms. And experts said more infections were likely among the group’s followers.

Iran’s health ministry said on Friday that two more Iranians had died after being infected, taking the number of fatalities in the country to four.

The worldwide outbreak has raised concerns of a deepening hit to consumer spending and worsening supply chain disruptions, darkening the outlook for multinationals and encompassing industries from airlines to shipping and smartphones to fashion.

In China, senior Chinese Communist party leaders on Friday urged officials to help workers travel back to their places of employment, as Beijing ramps up efforts to bring the economy back to life after weeks of shutdown due to the virus.

After a meeting chaired by President Xi Jinping, officials said priority had to be given to businesses playing an important role in global supply chains and that vital exporting enterprises had to be supported, state media reported.

However, most companies globally have little capacity to protect themselves other than to shelve growth plans, said Giovanni di Lieto, lecturer in international business from Australia’s Monash University. “No replacement for China is in sight,” he said.

Investors are also wary of a looming commodities sell-off once markets price in the disruption to supply chains caused by the coronavirus.

Goldman Sachs analysts said the virus had created the “largest disruption to commodity-related activity” since the financial crisis yet commodity prices have risen on hopes of stimulus.

Additional reporting by Mamta Badkar in New York


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