TREASURIES-Yields fall in spite of strong economic data

NEW YORK, Feb 20 (Reuters) – Demand for safe-haven Treasury debt was robust on Thursday morning in spite of strong U.S. economic data, with the 30-year bond yield dipping below the psychologically significant 2% level to the lowest since September 2019.

The 30-year yield was last down 5.8 basis points to 1.958%, while the 10-year note yield was last down 6.2 basis points to 1.508%.

Lower yields indicate demand, suggesting coronavirus fears may be driving investors into the safe-haven asset even as U.S. economic data appears robust.

“It’s not the data because the data has been tremendous and the market has been rallying,” said Thomas Simons, money market economist at Jefferies.

The Philadelphia Fed Business Conditions Index for February, which reflects the manufacturing business outlook, was reported on Thursday morning to be its highest in four years, beating expectations.

“The ‘Phase One’ trade deal has cleared the way for a solid increase in new orders and inventories, even if employment fell to the second lowest mark since 2016. The release comes after a string of decent reads on the domestic economy, with the economic surprise index at a two year high,” said Jon Hill, U.S. rates strategist at BMO Capital Markets.

The Treasury market showed little response to the data.

“The market by and large these days doesn’t seem to react much to economic data unless it is something that really changes the policy narrative,” said Simons.

“We had Fed minutes yesterday that suggested the only thing that will really change the policy narrative is more clarity on coronavirus and a real change in the inflation picture. Neither of things are going to develop overnight and certainly neither of those things have developed over the last 24 hours.”

China reported a drop in new coronavirus infections in the province at the heart of the outbreak on Wednesday, but scientists warned the pathogen may spread more easily than previously believed as two elderly passengers from a ship quarantined in Tokyo became the latest to die.

The streets of South Korea’s fourth-largest city were abandoned on Thursday, with residents holed up indoors after dozens of people caught the coronavirus in what the authorities described as a “super-spreading event” at a church.

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