Fundamental Comment

US treasury yield drops as coronavirus outbreaks

US treasury yield drops as coronavirus outbreaks

The yield curve on US Treasury bonds was reversed for the first time in nearly three months on Tuesday, due to growing concerns over the outbreak of coronavirus in China as well as its spread in some other countries.

The yield curve of U.S. Treasury bonds, which measures the gap between yields on three-month and 10-year government bonds, was inverted for the first time since last October.

And the inverted curve, which sees long-term government treasury bonds give investors lower returns than those that come shortly, as in the past, it was a fairly reliable indicator of predicting a U.S. economic recession.

The number of infected cases in China has risen to 106 and has spread to several countries, including France, Japan and the United States.

These developments have contributed to pushing global markets towards safe havens such as U.S. Treasury bonds, which have contributed to reducing the yield on those government debt, as there is an inverse relationship between them.

The gap between yields on three-month government bonds and 10-year government bonds briefly fell to -0.015 basis points, their lowest level since October, before returning to around 0.01 basis points.

As of 08:05 GMT, yields on the three-year U.S. Treasury bills dropped 0.39 percent to 1.440 percent, and yields on 10-year government bonds also slipped to 1.639 percent.

Later in the day, eyes will focus on the outcome of the Federal Reserve’s meeting, where the Fed is widely predicted to hold interest rates, but investors will focus on the statement, as well as any remarks from Fed President Jerome Powell.

Markets have raised their expectations that the Fed will cut U.S interest rates this year by 25 basis points while there is a 50 percent chance of a second cut later in 2020, according to federal funds futures.

Meanwhile, the dollar index, which measures the performance of major six currencies against the US dollar, advanced 0.07 percent at 97.90.

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