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Yields on U.S. 10-year, 5-year TIPS turn negative as virus fears mount

By Gertrude Chavez-Dreyfuss

By Gertrude Chavez-Dreyfuss

NEW YORK, Jan 27 (Reuters) - Yields on 10-year and five-year U.S. Treasury Inflation Protected Securities (TIPS) fell into negative territory on Monday as investors fretted about the global economy amid fears about the impact of the new coronavirus outbreak in China.

Aside from being a tool investors can use to protect against a pick-up in inflation, yields on TIPS are a barometer of market sentiment about the economy. Similar to a declining U.S. government bond yield, a falling TIPS yield is a sign investors are worried about the prospects for economic growth

"This shows how much distress is coming into the Treasuries market," said Jim Vogel, senior rates strategist, at FHN Financial in Memphis, Tennessee.

"It has also shown that it's quite possible that even if the global economy can recover from the coronavirus, inflation maybe slower to come back," he added.

The death toll from the virus rose to 81 on Monday, with more than 2,800 infected.

A small number of cases linked to people who traveled from Wuhan, China, have been confirmed in more than 10 countries, including Thailand, France, Japan and the United States, but no deaths have been reported outside China. Cambodia confirmed its first case on Monday.

U.S. 10-year TIPS yields fell to their lowest in more than four months, while those on five-year TIPS dropped to a 2-1/2-month trough.

In late trading, U.S. 10-year TIPS yields were last at -0.024%, compared with a positive yield of 0.011% late on Friday.

Yields on U.S. five-year TIPS slid to -0.128% , from Friday's -0.110%.

The U.S. 30-year TIPS yield was not negative just yet, but it was the lowest in a month on Monday and last traded at 0.329% . (Reporting by Gertrude Chavez-Dreyfuss; Editing by Tom Brown)