TREASURIES-Yield curve flatter as investors doubt inflation goal

BY Reuters | ECONOMIC | 09/17/20 09:47 AM EDT
       By Ross Kerber
    Sept 17 (Reuters) - U.S. Treasury yields dropped and the
yield curve flattened on Thursday as investors grew skeptical of
Federal Reserve efforts to stimulate economic growth and took
stock of a report showing persistently high jobless claims.
    The benchmark 10-year yield was down 2.9 basis
points at 0.6576% in morning trading after touching as low as
0.646%, the lowest since Sept. 4.
    The trading marked a turnaround from Wednesday afternoon,
when investors seemed to accept Fed actions could bring about
more inflation.
    But those expectations changed as government bondholders
digested the Fed's message overnight, said Andrew Richman,
senior fixed income analyst for Sterling Capital Management.
    "It could be a reversal of yesterday's sentiment that yes,
the Fed could let inflation run high, but still there is worry
that we never hit that inflation target" of 2% sought by the
central bank, Richman said.
    Also helping send down yields on a risk-off morning was a
new Labor Department report showing the number of Americans
filing new claims for unemployment benefits fell last week, but
remained at an extremely high level as the jobs recovery shifts
into low gear and consumer spending cools amid fading fiscal
stimulus.
    Wall Street's main indexes opened lower after the jobs
report.
    A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes, seen as an indicator of economic
expectations, was at 53 basis points, about 3 basis points lower
than Wednesday's close but still above its level of 33 basis
points reached on July 24.
    The two-year  U.S. Treasury yield, which
typically moves in step with interest rate expectations, was
down a basis point at 0.129% % in morning trading.
    The yield on the three-month U.S. Treasury bill
was at 0.0938%, down 1.8 basis points and the first time the
measure was below 0.1% since Aug. 27.

    September 17 Thursday 9:25AM New York / 1325 GMT



                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.0925       0.0938    -0.018
 Six-month bills               0.1125       0.1141    -0.003
 Two-year note                 99-254/256   0.129     -0.010
 Three-year note               99-240/256   0.1459    -0.016
 Five-year note                99-248/256   0.2563    -0.018
 Seven-year note               100-102/256  0.4417    -0.023
 10-year note                  99-176/256   0.6576    -0.029
 20-year bond                  98-236/256   1.1859    -0.041
 30-year bond                  99-64/256    1.4058    -0.041

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap         7.75         0.00
 spread
 U.S. 3-year dollar swap         7.00         0.25
 spread
 U.S. 5-year dollar swap         6.00         0.75
 spread
 U.S. 10-year dollar swap        0.50         0.50
 spread
 U.S. 30-year dollar swap      -37.00         0.75
 spread



 (Reporting by Ross Kerber in Boston; editing by Jonathan Oatis)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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