If coronavirus fears escalate, Wells Fargo warns 10-year Treasury yields could fall another 30%

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Coronavirus fears will drive Treasury yields even lower, Wells Fargo predicts

Wells Fargo Securities' Michael Schumacher expects the bond rush to intensify.

According to the firm's global head of rate strategy, coronavirus fears will drive more investors into the U.S. Treasury market as a safe haven play and drive yields sharply lower.

The benchmark 10-year Treasury Note yield is already down 22% so far this year.

"Our big concern is that investors get more and more nervous," Schumacher told CNBC's "Trading Nation" on Friday. "We would say that probably the last 25 to 30 basis points mainly in the 10-year is largely due to the virus."

On Friday, the 10-year yield hit a low of 1.50% — its lowest level since early September.

"It's really a function of the news flow coming out of China in the near-term," he said.

If the coronavirus situation continues to deteriorate, Schumacher warns 10-year yields could fall at least another 30%.

"The worst case I would say with respect to the virus is that it has a massive effect on the global economy and knocks yields down to let's say somewhere in the low ones for the 10-year," he added. "It's a low probability, but it's not zero in our opinion."

He warns the coronavirus outbreak coupled with negative interest rates around the world is making U.S. Treasurys particularly attractive right now despite the historically low yield.

"Will there be a lot of follow on hedging activity by investors who pushed the yield down quickly? We haven't seen a lot of it so far, but it could happen," said Schumacher.

The coronavirus scare was also responsible on Friday for the stock market's big pullback. The Dow lost 603 points, and the index is now negative for the year.

The S&P 500 and tech-heavy Nasdaq are now having their worst start to the year since 2016.

If stocks continue to get hammered, Schumacher expects it to put Treasury yields under more pressure.

"For every one percent move in the S&P, it's worth four basis points maybe in the 10-year," Schumacher said. "If you saw a downdraft of a couple percent more in stocks, that could push yields back to that 1.44% to 1.45% level."

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Coronavirus fears are front and center in the bond market, Wells Fargo's says