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TREASURIES-U.S. yields skid as investors weigh new virus impact

By Gertrude Chavez-Dreyfuss

* New virus kills 18 people, 634 infected * WHO says too early to declare new virus as global emergency * ECB's Lagarde says monetary policy to remain accommodative * U.S. 10-year TIPs auction shows mixed results * U.S. yield curve flattest in five weeks (Adds analyst comment, results of U.S 10-year TIPs auction, updates prices, yield curve milestone) By Gertrude Chavez-Dreyfuss NEW YORK, Jan 23 (Reuters) - U.S. Treasury prices rallied on Thursday, pushing yields to multi-week lows, boosted by safe-haven demand on persistent concerns about the impact of the latest coronavirus, which recently broke out in China. U.S. 30-year yields dropped to a seven-week low, while those on two-year and 10-year notes fell to fresh two-week troughs. At the same time, the yield curve flattened on Thursday after steepening last week, as sentiment soured amid the Chinese coronavirus. The spread between the two-year and 10-year note yields contracted to 21.04 basis points, the tightest gap in five weeks. The latest virus has killed 18 people and infected 634, as China placed millions of people on lockdown on Thursday in two cities at the epicenter of the outbreak. The virus, which emerged late last year from illegally traded wildlife at an animal market in the central Chinese city of Wuhan, has spread to many parts of Asia, including Vietnam, Singapore, South Korea, Thailand, and Japan. The United States has also reported one case. "The coronavirus is adding a bid to Treasuries because of the uncertainty of how widespread it could become and whether it would inhibit businesses such as airlines and hotel, said Lou Brien, market strategist at DRW Trading in Chicago. "Obviously, there is the concern for the loss of life as well." Also on Thursday, European Central Bank President Christine Lagarde spoke after the bank launched a broad review of its policy because it has fallen short of its inflation target of just under 2% for years despite implementing aggressive stimulus measures. The ECB also left its policy rates unchanged. Lagarde also struck a dovish tone at her news conference, noting that monetary policy has to remain highly accommodative for a prolonged period of time. Germany's 10-year bond yield fell after her remarks, which was last at -0.304%. Lagarde's comments also weighed slightly on Treasury yields. In afternoon trading, U.S. 10-year yields fell to 1.732%, from 1.771% late on Wednesday. Earlier in the session, 10-year yields fell to two-week lows of 1.72%. Yields on U.S. 30-year bonds were at 2.178%, down from 2.219% on Wednesday. Thirty-year yields earlier fell to seven-week troughs of 2.172%. On the short end of the curve, U.S. two-year yields fell to two-week lows of 1.489% from Wednesday's 1.526%. They were last at 1.513%. The U.S. Treasury on Thursday also auctioned $14 billion in 10-year Treasury Inflation-Protected Securities (TIPS) with mixed results. Domestic demand was a little weaker than expected, but indirect bidders, which include foreign central banks, showed strong bids. Indirect bidders claimed 73.2% of the offering, compared with a 65.4% average. January 23 Thursday 3:32PM New York/2032 GMT Price Current Net Yield % Change (bps) Three-month bills 1.525 1.5564 0.002 Six-month bills 1.525 1.5624 0.002 Two-year note 100-54/256 1.5138 -0.012 Three-year note 99-250/256 1.508 -0.019 Five-year note 100-246/256 1.5469 -0.028 Seven-year note 100-164/256 1.6518 -0.036 10-year note 100-36/256 1.7342 -0.037 30-year bond 104-64/256 2.1803 -0.039 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 6.25 -0.75 spread U.S. 3-year dollar swap 3.50 -0.50 spread U.S. 5-year dollar swap 0.50 -0.50 spread U.S. 10-year dollar swap -5.25 -0.50 spread U.S. 30-year dollar swap -31.50 -0.50 spread (Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan Oatis)