By Herbert Lash
NEW YORK (Reuters) - Yields on U.S. Treasuries plunged to historic lows on Friday as fear the coronavirus outbreak will slam the global economy drove investors to snap up risk-adverse assets and dump equities, overshadowing data highlighting a strong U.S. labor market.
The 10-year Treasury yield fell to a record low of 0.69% as new milestones were set across the U.S. bond market, which this week has seen some of its biggest moves in years as the pandemic spreads outside China.
Gold prices rose more than 1% at one point and posted the biggest weekly gain since October 2011, while declining U.S. government bond yields weakened the dollar as it posted its worst week since 2016, down more than 2%.
The number of people infected with the new coronavirus across the world surpassed 100,000 on Friday as its economic toll intensified, with business districts beginning to empty and companies bracing for slower sales.
A U.S. jobs report showed employers maintained a robust pace of hiring in February, driving solid wage growth and the unemployment rate to fall back to near a 50-year low of 3.5%.
Upward revisions also were made to hiring in December and January but this month's report failed to fully capture the impact of the coronavirus, which led the Federal Reserve to cut interest rate by a half percentage point earlier this week.
"If you have a really strong jobs report and there's no one around to hear it, does it make a noise?" said Michael Arone, chief investment strategist at State Street (NYSE:STT) Global Advisors in Boston.
"Today's an example that it doesn't. There are many other things that investors are focused on besides the jobs report this morning," he said.
Since the end of January when the coronavirus started to make headlines worldwide, markets have sold off on Fridays as investors are unwilling to go into the weekend holding too many risky positions, Arone said.
"That pattern has held true and we're observing it in today's market as well," he said.
SPREADING FLU
The flu-like virus emerged late last year in China and has spread to more than 90 countries, killing more than 3,400 people. Travel restrictions and factory closings aimed at curbing the virus are expected to pressure global growth, but the extent of a slowdown is hard to calculate, analysts say.
Stock prices have been impacted but how much and for how long earnings will be affected is unknown, said Katie Nixon, chief investment officer at Northern Trust Wealth Management in Chicago.
"We just don't know the magnitude of the duration," she said. Supply issues already are being resolved in China, but "the demand picture is a lot murkier as people are very rapidly changing their behavior around the world," she said.
IHS Markit cut its U.S. growth forecast for the year to 1.8% from a previous 2.1% because of the pandemic. "We are not forecasting a recession, but the risks have risen," it said.
MSCI's gauge of stocks across the globe shed 2.05% and emerging market stocks lost 2.62%.
In Europe, the pan-regional STOXX 600 index fell 3.67%. Oil and gas stocks ended more than 5% lower in their worst day in more than three years after Russia rejected a steep output cut from the Organization of the Petroleum Exporting Countries. The drop in Treasury yields weighed on shares of U.S. financial companies, which tumbled 3.3% while the S&P 500 Banks index dropped 4.7%.
The three major Wall Street indices fell as much as 4%, but pared a good portion of those losses before the close.
The Dow Jones Industrial Average fell 256.5 points, or 0.98%, to 25,864.78. The S&P 500 lost 51.57 points, or 1.71%, to 2,972.37 and the Nasdaq Composite dropped 162.98 points, or 1.87%, to 8,575.62.
Futures traders bet the Federal Reserve will slash U.S. interest rates to near zero by April.
Treasury prices soared but the strong U.S. non-farm payrolls report lifted the yield a bit from their lows.
Benchmark 10-year notes rose 42/32 in price to yield 0.7923%, while the 30-year bond rose 212/32 in price to yield 1.3167%.
Germany's benchmark 10-year Bund yield touched a record low of 0.746.
The slide in Treasuries wiped out the yield advantage that had fueled a popular "carry" trade in currencies - borrowing at negative rates in the euro and yen to buy U.S. assets.
Oil prices tanked about 10% to their lowest levels since mid-2017. Brent futures settled down $4.72 at $45.27 a barrel, while U.S. West Texas Intermediate (WTI) crude shred $4.62 a barrel to settle at $41.28 a barrel.
Gold rose to its highest since January 2013 at $1,689.65 an ounce earlier in the session but later pared some gains. For the week spot gold prices rose about 5.6%.
U.S. gold futures settled 0.3% higher at $1,672.40.