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U.S. yields sink on fears about China’s new virus

* U.S. 2-year, 10-year, 30-year yields fall to two-week lows

* New cases on coronavirus surge to 300

* Some strategists downplay virus economic impact

* Trump’s impeachment trial raises mild concern (Repeats to additional subscribers without any changes to text)

By Gertrude Chavez-Dreyfuss

NEW YORK, Jan 21 (Reuters) – U.S. Treasury prices surged on Tuesday, pushing yields lower as risk appetite dropped, amid worries about the potential fallout from a lethal virus that has broken out in China.

U.S. two-year, 10-year, and 30-year yields fell to two-week lows on the news.

Wall Street shares struggled as well, as investors tried to make sense of this new virus outbreak.

Global officials confirmed that the coronavirus strain is contagious between humans. The death toll from a mysterious flu-like virus in China climbed to six on Tuesday as new cases surged beyond 300.

“The fear is that it could be a SARS-type event, which was an economic issue,” said Ellis Phifer, market strategist at Raymond James in Tennessee. “But this is all cautionary. The market is not panicking or anything.”

China’s Severe Acute Respiratory Syndrome (SARS) outbreak from 2002 to 2003 killed nearly 800 people.

In afternoon trading, U.S. 10-year yields fell to 1.769%, from 1.835% late on Friday. Earlier in the session, two-year yields fell to two-week lows of 1.766%.

U.S. financial markets were closed on Monday for the Martin Luther King Jr holiday.

Yields on U.S. 30-year bonds were at 2.229%, down from 2.296% on Friday. Thirty-year yields also fell to two-week troughs of 2.223%.

On the short end of the curve, U.S. two-year yields fell to two-week lows of 1.528% from Friday’s 1.569%. They were last at 1.532%.

The yield curve flattened on Tuesday after steepening last week, as global rates fell on caution about the Chinese coronavirus. The spread between the two-year and 10-year note yields narrowed to 23.38 basis points.

Oliver Jones, markets economist at Capital Economics in London, suggested that events such as the latest virus scare rarely have long-lasting and widespread effects on financial markets.

He noted that while SARS had clear economic and financial impact in Asia when it hit in 2003, the effects were fairly contained and did not last long.

“With all of that in mind, for the time being we are not altering any of our forecasts in response to the spread of the new virus,” Jones said.

Meanwhile, U.S. President Donald Trump’s impeachment trial in the Senate, which began on Tuesday, has also caused some mild jitters.

Democrats have called on the Senate to remove the Republican president from office, describing him as a danger to American democracy and national security. Trump and his lawyers have decried his impeachment, saying he has done nothing wrong and that Democrats are simply trying to stop him from being re-elected.

“The impeachment trial is finally here,” said Raymond James’ Phifer. “I don’t think the concern is anything more than that. Now that it’s here, let’s be a little cautious again.” (Reporting by Gertrude Chavez-Dreyfuss Editing by Nick Zieminski and Lisa Shumaker)


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