The 10-year U.S. Treasury yield plunged to a fresh record low on Friday as investors dumped riskier assets and searched for safer options amid the coronavirus outbreak.
The benchmark rate traded at 1.116%, marking the first time ever it traded below 1.2%. The 2-year rate slid to 0.874%, its lowest level since Nov. 2016. Yields move inversely to bond prices, which are rising as purchases surge.
The 10-year yield has tumbled more than 30 basis points this week alone as the massive sell-off in stocks intensified. (A basis point is 0.01%.)
Concerns about the global economic impact of the coronavirus have dented investor sentiment this week. The death toll in China from the virus has topped 2,700. New Zealand and Nigeria reported their first coronavirus cases overnight. In Iran, the number of cases has grown to nearly 400.
The outbreak sent investors fleeing equities in favor of Treasurys, which have traditionally been a safer alternative to stocks. The Dow Jones Industrial Average and S&P 500 were headed for their biggest one-week losses since the financial crisis.
Yields tumbled as the Fed signaled late Friday it might be willing to support the economy if necessary. Fed Chairman Jerome Powell said the central bank is monitoring the coronavirus for risks it poses.
"The fundamentals of the U.S. economy remain strong," Powell said in a mid-day statement. "However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy."
The Dow tumbled another 1,000 points at its low on Friday, bringing its losses this week to nearly 4,000 points. The 30-stock benchmark plummeted nearly 1,200 points on Thursday — its biggest one-day point drop ever — closing in correction territory along with the S&P 500 and Nasdaq Composite.
"Markets seem to view an impossible trade-off: draconian quarantine measures triggering recession or a pandemic. Either scenario is extreme but it's too early to fade rate moves," Ralf Preusser, global head of rates strategy at Bank of America Merrill Lynch, said in a note on Friday.
Amid the market rout, traders are increasingly pricing in Fed rate cuts in the coming months. The fed funds futures market is assigning a 100% chance of at least one rate cut at the Fed's March policy meeting, according to the CME FedWatch Tool.
St. Louis Fed President James Bullard said Friday the outbreak would have to reach levels of the ordinary flu before he would consider cutting interest rates.
"The Fed can't do anything to stop the spread of COVID-19, but they also can't stand idly by in the face of a global equity correction," Ian Lyngen, BMO's head of U.S. rates, said in a note on Friday. "The market believes the Powell Put is alive and well; the current episode will function as an important litmus test for this core tenet."
Yields remained lower after solid economic data on Friday. Consumer sentiment climbed to its highest level since March 2018, while personal income rose 0.6% in January, more than the 0.3% rise expected.