By Matt Wirz
U.S. government bond yields reversed early gains Wednesday, dragged down to fresh all-time lows amid new signs that the coronavirus is spreading.
Investors initially paused in buying Treasurys, mostly because yields, which fall as bond prices rise, dropped to record lows Tuesday, traders and analysts said. Demand rose again following reports of new coronavirus cases in places including South America.
The yield on the benchmark 10-year Treasury note recently traded at 1.309%, according to Tradeweb, from Tuesday's record low close of 1.328%. The 30-year bond's yield fell to 1.792% from 1.803% Tuesday.
Fears that the coronavirus could hurt the global economy sent the 10-year yield to as low as 1.310% Tuesday. That suggests investors see a relatively high chance that the U.S. Federal Reserve could cut rates soon, but so far economic indicators don't bear that up, said Thomas Simmons, an economist at Jefferies LLC.
Economic fallout from the virus isn't likely to have a material impact on the U.S. economy until the second quarter of the year, and it will take more time for that data to be disseminated, Mr. Simmons said. Fed officials next meet to consider changing interest rates in mid-March.
"The 10-year broke through a record-low yield yesterday and it's hard to see the market going much further absent more bad news," he said.
Bonds of energy companies weakened Wednesday as investors braced for more bad news from oil and gas producers.
Chesapeake Energy Corp.'s bond due 2025 fell to 68.75 cents Wednesday after the company reported a decline in revenue, down from 72.25 Tuesday, according to data from BondTicker. Occidental Petroleum Corp.'s bond due 2049, one of the most actively traded corporate bonds in the U.S. on Wednesday, fell to as low as 103.14 cents on the dollar from 105.60 on Tuesday. The company is slated to report earnings this week.
More broadly, rising Treasurys prices have boosted investment-grade corporate bonds, which typically move in lockstep with the government debt. Investment-grade corporate bonds returned 3.6% this year through Tuesday compared with a 4% gain in U.S. government bonds and a roughly 3% loss in U.S. stocks, according to research from CreditSights
The spread between yields of investment-grade bonds and Treasurys is likely to widen slightly, but investors "shouldn't be fussed about that, " said Erin Lyons, a strategist at CreditSights. The yield differential of about 1.13% is larger than that of many other comparable bonds, giving the corporate debt good relative value, she said.
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