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TREASURIES-U.S. yields mixed as investors assess virus implications

By Gertrude Chavez-Dreyfuss

* Death toll from new virus rises to 17, alarm spreads * BoC holds rates, opens door for further easing * U.S. 2-year, 10-year, 30-year yields fall to 2-week lows (Recasts, adds new analyst comment, updates prices) By Gertrude Chavez-Dreyfuss NEW YORK, Jan 22 (Reuters) - U.S. Treasury yields were narrowly mixed on Wednesday, with market participants cautious overall, as bond investors digested the economic implications of a fatal new coronavirus from China. Worries about the latest virus outbreak in China evoked memories of another deadly virus, Severe Acute Respiratory Syndrome (SARS) that killed nearly 800 people between 2002 and 2003. Deaths from China's new flu-like virus rose to 17 on Wednesday with more than 540 cases confirmed, increasing fears of contagion from an infection suspected to originate from illegally traded wildlife. Beyond China, the United States reported one case, Thailand has reported four cases and South Korea one. Japan has also confirmed one case. All of those cases involved people who had either come from or been in Wuhan recently. "It's not so much the virus directly. It's the virus taking down growth in China and Asia, which should put downward pressure on commodity prices," said Stan Shipley, fixed income strategist at Evercore ISI in New York. "When commodity prices are down, that's bullish for Treasuries. If Asia's growth is slowing and inflation in the U.S. is down, then the Federal Reserve will not tighten at all, but could well ease policy." Earlier in the session, U.S yields were also pressured after the Bank of Canada held interest rates steady and opened the door for possible easing amid an economic slowdown. That rekindled worries about global growth. U.S. two-year, 10-year and 30-year yields hit fresh two-week lows after the BoC headlines. Treasuries typically react little to monetary policy news from its North American neighbor, but have become more sensitive to global factors the last few months. The BoC, which has been on the sidelines since October 2018, maintained its key overnight interest rate at 1.75% as expected, but said recent economic data had been mixed and noted "unexpectedly soft" indicators of consumer confidence and spending. "Going into this year, the belief was that global easing was over and things were looking better for the entire world," said Jim Vogel, senior rates strategist at FHN Financial in Memphis, Tennessee. "For Canada to sort of change its outlook fairly quickly opens up the possibility that easing could occur elsewhere too," he added. In afternoon trading, U.S. 10-year yields were little changed at 1.770%, from 1.769% late on Tuesday. Earlier in the session, 10-year yields fell to two-week lows of 1.759%. Yields on U.S. 30-year bonds were at 2.218%, down from 2.231% on Tuesday. Thirty-year yields also fell to two-week troughs of 2.207%. On the short end of the curve, U.S. two-year yields fell to two-week lows of 1.522% from Tuesday's 1.532%. They were last at 1.526%. January 22 Wednesday 3:11PM New York/2011 GMT Price Current Net Yield % Change (bps) Three-month bills 1.5225 1.5539 -0.002 Six-month bills 1.5225 1.5599 0.000 Two-year note 100-47/256 1.5283 -0.004 Three-year note 99-234/256 1.5296 -0.002 Five-year note 100-212/256 1.5749 0.002 Seven-year note 100-104/256 1.6876 0.005 10-year note 99-208/256 1.7708 0.002 30-year bond 103-104/256 2.2181 -0.013 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.00 -0.25 spread U.S. 3-year dollar swap 4.00 -0.25 spread U.S. 5-year dollar swap 1.00 -0.50 spread U.S. 10-year dollar swap -4.75 -0.75 spread U.S. 30-year dollar swap -31.00 -0.25 spread (Reporting by Gertrude Chavez-Dreyfuss; Editing by Nick Macfie and Nick Zieminski)