LONDON- British government bond yields touched their lowest level in more than four months on Monday, dropping as much as 10 basis points, as investors shifted out of riskier assets following news of the new coronavirus's spread in Italy.
Italian officials said on Monday that a fourth person had died from the virus, which originated in the central Chinese province of Hubei in December.
More than a dozen towns in Lombardy, southeast of Italy's financial capital Milan, with a combined population of nearly 50,000 have been placed under effective quarantine, the first such measures in Europe.
Italy's blue-chip index dropped more than 4%, on track for its biggest daily fall since 2016, and investors flocked into fixed income assets including British government bonds.
"Risk assets are extending the anxiety from last week with the number of COVID-19 infections rising quickly outside of China," economists at Citi wrote in a note to clients.
Thirty-year British government bond yields touched their lowest level since Sept. 27, when concerns about a disruptive Brexit were near their peak, down 10 basis points on the day at 0.905% at 0844 GMT.
Two-year yields touched their lowest since Oct. 10, down as much as 8 basis points at 0.380%.
Benchmark 10-year gilt yields were down more than 7 basis points on the day at 0922 GMT - broadly in line with U.S. Treasuries and German Bunds - at 0.52%, having earlier touched their lowest since Jan. 30.
Last week British manufacturers reported disruption to supply chains from the effect of the virus in China.
"An increase in COVID-19 cases in Italy over the weekend implies increased risks to euro area growth. Extra domestic disruption would be expected if the outbreak were to expand materially," Morgan Stanley economist Jacob Nell wrote.
(Reporting by David Milliken and Dhara Ranasinghe; editing by Nick Macfie) ((david.milliken@reuters.com; +44 20 7542 5109; Reuters Messaging: david.milliken.thomsonreuters.com@reuters.net))
