TREASURIES-Coronavirus worry sends yields to new lows; 10-year hits below 1.25%

(Updates with market activity, Morgan Stanley comment, context)
By Ross Kerber
BOSTON, Feb 27 (Reuters) - U.S. Treasury yields continued to
decline on Thursday as investors piled into the assets seen as
safe havens, with the yield on the benchmark 10-year note
reaching an all-time low for the third consecutive day.
The yield on the 10-year note was down 3.9 basis
points in morning trading at 1.2706%, after reaching as low as
1.2491%.
Yields on other treasuries also fell, including on the
30-year bond, which also hit a new low. Also the two-year note,
which typically moves in step with interest rate expectations,
was down 7.2 basis points in morning trading to 1.0734%, close
to its lowest since late 2016.
Analysts said the rush to safety came as more coronavirus
cases were reported worldwide, drawing buyers for U.S.
government bonds from among investors dumping equities and other
assets, as well as regular fixed-income customers.
"The treasury market is truly the risk-free asset for
everybody," said Michael Kushma, chief investment officer of
global fixed income at Morgan Stanley Investment Management.
How long the dynamic lasts depends on whether U.S. companies
start to lay off workers, which could lead to declines in
consumer spending, he said, adding the U.S. Federal Reserve is
likely tracking the same issue.
"The key factor of how this will play out for the Fed is if
the labor market stays okay," Kushma said.
The outbreak has reached a "decisive point", the head of the
World Health Organisation (WHO) said on Thursday, urging
countries to redouble efforts to contain it.
Goldman Sachs said U.S. companies will generate no earnings
growth in 2020 as the coronavirus spreads, deepening risks to
global growth.
Growing uncertainty about the virus has driven bond yields
down steadily since January.
In a note to clients BMO head of U.S. rates strategy Ian
Lyngen wrote "the process of defining the lower bound for US
rates will continue for several weeks as pressure mounts for the
Fed to provide a policy response."
Analysts will be focused on the results of an auction of
7-year notes by the U.S. Treasury later on Thursday.

February 27 Thursday 9:58AM New York / 1458 GMT



Price Current Net
Yield % Change
(bps)
Three-month bills 1.4025 1.4309 -0.087
Six-month bills 1.2825 1.3123 -0.101
Two-year note 100-26/256 1.0734 -0.072
Three-year note 100-232/256 1.0636 -0.061
Five-year note 100-60/256 1.0767 -0.050
Seven-year note 102-20/256 1.1864 -0.043
10-year note 102-36/256 1.2706 -0.039
30-year bond 105-128/256 1.7629 -0.035

DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 3.50 -0.25
spread
U.S. 3-year dollar swap 0.75 -0.50
spread
U.S. 5-year dollar swap 0.75 0.50
spread
U.S. 10-year dollar swap -6.25 -0.50
spread
U.S. 30-year dollar swap -38.25 -0.50
spread

(Reporting by Ross Kerber)