US yields drop as data puts pandemic's economic punch in focus

• US two-year yields dropped below 0.2% for the first time in three years, while those on 10-year notes and 30-year bonds dipped to one-week lows.

NEW YORK: US Treasury yields fell across the board on Wednesday as risk aversion flared up again after data showed the coronavirus pandemic decimating U.S. consumer demand and manufacturing activity.

U.S. two-year yields dropped below 0.2% for the first time in three years, while those on 10-year notes and 30-year bonds dipped to one-week lows.

For the last few days, U.S. yields had been trending higher as investors looked to the reopening of the U.S. economy, on the back of reports the coronavirus outbreak was nearing an apex in the United States.

Yields were already lower ahead of the release of U.S. data, as oil prices fell to less than $20 per barrel and global equities slumped. They extended their declines after the data.

U.S. retail sales dropped 8.7% in March, the biggest decline since the government started tracking the series in 1992. According to a Reuters survey of economists, retail sales were forecast to have fallen 8.0% last month.

"With widespread lockdowns only beginning around the middle of the March, retail spending looks like it will fall by at least as much again in April," said Michael Pearce, senior U.S. economist, at Capital Economics.

"Clearly there is huge uncertainty as to how deep the downturn proves and how long restrictions remain in place."

Capital Economics is forecasting a 40% contraction annualized in second-quarter U.S. gross domestic product growth.

At the same time, U.S. manufacturing output overall dropped 6.3% in March, the most since 1946, the U.S. Federal Reserve said on Wednesday.

Another Fed survey on Wednesday showed U.S. companies have been battered by the fallout from the novel coronavirus outbreak as economic activity "contracted sharply and abruptly across all regions."

"Confidence that a V-shaped recovery is coming is waning," said Jon Hill, interest rates strategist, at BMO Capital in New York.

In late afternoon trading, U.S. 10-year yields fell to 0.633%, from 0.75% late on Tuesday. They dropped to a one-week low of 0.625%

Yields on U.S. 30-year bonds were at 1.276%, down from 1.411% on Tuesday, after earlier sliding to 1.258%, also a one-week trough.

On the short end of the curve, U.S. two-year yields were last at 0.202%, down from Tuesday's 0.225%. Earlier in the session, two-year yields sank to 0.191%, the lowest since April 2017.

The yield curve flattened Wednesday, with the spread between the 10-year and two-year narrowing to nearly 43 basis points , from 52 basis points on Tuesday. The curve has steepened since the beginning of the pandemic as investors have ruled out rate hikes in the immediate future.

The yield on U.S. 30-year Treasury Inflation Protected Securities, meanwhile, hit a record low of -0.183%, while that of U.S. 10-year TIPs fell to a seven-year trough of -0.553%.