TOKYO/SHANGHAI -- Sovereign bond yields are falling worldwide as investors and governments fret about the risks posed by the coronavirus outbreak to the global economy.
Several emerging markets lowered policy rates this month as the virus spread. Thailand, Indonesia and Brazil are among the 12 countries that have implemented cuts so far, and long-term bond yields in Thailand are close to falling below 1% for the first time. These countries -- which have particularly close economic ties to China through tourism and resource exports, for example -- are especially exposed to the impact of the outbreak.
China's three-month interbank lending rate has sunk to a 10-year low. President Xi Jinping's government is rolling out fiscal and monetary stimulus measures to blunt the outbreak's economic impact. The People's Bank of China cut its benchmark one- and five-year loan prime rates Thursday by 10 basis points and 5 basis points, respectively.
Lower rates in developing countries have pushed investor capital to the U.S., where rates are somewhat higher, contributing to a dollar rally that has driven emerging-market currencies downward.
Fears of a global economic downturn with China at the epicenter have spurred a flight to government bonds in developed countries, seen as safe havens. The yield on 30-year U.S. Treasurys fell as far as 1.88% on Friday, a record low.
Benchmark 10-year yields have fallen into negative territory in 13 out of 56 major countries and regions, including France and Sweden, matching a record set in the summer of 2019. The total amount of negative-yielding debt worldwide has climbed to about $1.3 trillion, up nearly 20% from the end of 2019.
The U.S. Federal Reserve lowered interest rates three times last year as a precautionary measure amid the trade war with China. With stock prices rallying to record highs and economic indicators also looking solid, analysts had widely expected the central bank to hold off on further cuts.
But Fed Chair Jerome Powell warned in testimony before Congress on Feb. 11 that the coronavirus outbreak "could lead to disruptions in China that spill over to the rest of the global economy."
"The U.S. will be forced into further defensive rate cuts," predicted Hiroshi Matsumoto of Pictet Asset Management.
Further rate cuts by emerging countries would encourage state and corporate borrowing, giving their economies a boost. But they would also risk driving their currencies lower, inflating foreign-currency debt burdens. Markets may also steer clear of such heavily indebted borrowers, disrupting fund flows.
Additional reporting by Tatsuya Goto in New York.