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Treasury yields climb as stocks recover from steep drop as virus worries wane

U.S. Treasury yields rebounded on Tuesday as investors took a breather from the coronavirus worries which helped spark the biggest single-day drop in major equity indexes in several months on Monday.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, +0.15%   rose 3.7 basis points to 1.642%, a day after hitting its lowest level since Oct. 9, while the two-year note rate TMUBMUSD02Y, -0.53%  rose 1.4 basis points to 1.457%, bouncing off its three-month nadir. The 30-year bond yield TMUBMUSD30Y, +0.09%   climbed 4.2 basis points to 2.097%.

What’s driving Treasurys?

The coronavirus continued to dominate the attention of market participants amid reports that Asian financial center Hong Kong was now imposing new travel restrictions on China. Analysts suggest health scares like the recent viral outbreak tend not to have a lasting influence on Treasurys and stocks, but the outsized importance of China’s economy to global growth has tempered optimism that the uncertainty around its market impact will pass.

Official reports now indicate that more than 100 people have died from the coronavirus, and the latest tally reflecting more than 4,500 confirmed cases.

Xinhua News reported that the coronavirus could reach its peak in a week or 10 days, based on an interview with Zhong Nanshan, an expert on respiratory viruses.

Asian equity markets reeled amid deepening fears over the virus in China. But U.S. stocks showed signs of stabilizing after the S&P 500 SPX, +1.01%   and Nasdaq Composite COMP, +1.43%   notched a more than 1% climb on Tuesday.

The Federal Reserve started its two-day policy meeting on Tuesday, though few analysts are expecting any big changes to the central bank’s monetary-policy stance. However, investors are hoping for some details on the Fed’s balance-sheet expansion and whether it was contributing to easier financial conditions.

In economic data, U.S. durable goods orders for December surged 2.4%, surprising analysts who had forecast a modest drop of 0.3%. Much of that was driven by an increase in defense spending, and when stripped out, indicated a less impressive uptick in capital expenditures.

Other data offered a more positive spin on the economy’s progress. The Conference Board’s U.S. consumer confidence index for January climbed to a reading of 131.6, from the previous month’s 128.2, suggesting households would continue to drive the U.S. expansion forward.

On the debt supply front, the Congressional Budget Office underlined the U.S. government’s growing deficits and the likely issuance that will accompany them. The CBO projected public debt could climb to 98% of the country’s GDP by 2030, the highest level since the end of World War II.