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Treasury Yield Falls Sharply on Rising COVID-19 Woes

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The Coronavirus outbreak, which originated in China, has sent jitters across global markets, including the United States. Concerns on COVID-19's negative impact on the U.S. economy are escalating investors’ anxieties. Consequently, the yield on benchmark 10-year Treasury note plummeted sharply.

Specifically, the rate on the 10-year Treasury bond has slid below 1.40%, since July 2016. Further, the yield on the 30-year Treasury bond shrunk to a record low below 1.84%.

With the viral infection now spreading across South Korea, Italy and Japan, the extent of its negative impact on supply chains and economic growth is difficult to estimate, since it is already emerging as a global epidemic.

To exemplify some data, manufacturing and business activities have been sluggish this month, spurring investor concerns and trader woes. Moreover, travel restrictions, business shut downs and other measures taken to curb the spread of COVID-19 in China are disrupting supply chains and sales prospects of big companies, including technology, auto sector and travel-related. Therefore, the U.S. economy is likely to be more impacted than previously expected.

Remarkably, for the first time, manufacturing and business activities in the United States contracted in February, since the federal government shut down in 2013, per data from IHS Markit. Consequently, anticipations of another Fed rate cut this year, in a bid to help the economy, have been making rounds in the market.

A major sell-off was recorded following the drastic spreading of the virus globally, with the Dow Jones Industrial Average (DJIA) falling 3.56% on Monday, and all three major U.S. stock indices displaying a similar downtrend. Markedly, among others, Bank of America (BAC - Free Report) , Morgan Stanley (MS - Free Report) , Intel Corporation (INTC - Free Report) , Apple Inc. (AAPL - Free Report) , American Airlines Group Inc. (AAL - Free Report) and General Motors Company (GM - Free Report) depreciated more than 4%.

Therefore, investors moved toward safe-haven assets, which sunk the benchmark 10-year Treasury yield, pushing bond prices higher. It should be noted that bond prices and yields move in opposite directions.

At present, the entire economic picture looks grim, and the financial performance of different sectors might be affected further by the deadly virus outbreak, escalating investors’ panic.

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