TREASURIES-Prices gain as investors pause sell-off, bias still for higher yields

BY Reuters | TREASURY | 10/08/20 10:32 AM EDT
       By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 8 (Reuters) - U.S. Treasury prices firmed on
Thursday, after falling for most of the week that saw long-dated
yields hit four-month peaks, as investors paused a sell-off in
the face of persistent uncertainty about the stimulus talks on
coronavirus aid as well as weaker-than-expected jobless claims
data.
    With yields down for the day, the curve flattened a bit,
with the spread between the two-year and 10-year yields at 61.9
basis points. Since late July, though, the curve
has steepened by around 30 basis points.
    Two days after calling off U.S. stimulus negotiations,
President Donald Trump, in an interview with Fox Business
Network, said talks with Congress have restarted over further
COVID-19 relief and that there was a good chance a deal could be
reached, but gave no other details about a possible agreement.

    Treasury yields inched higher after Trump's comments, but
came back down.
    "We have seen a sell-off yesterday heading into the auction.
I think this is a moderation of the move we have seen the past
couple of days with yields close to their highs," said Subadra
Rajappa, head of U.S. rates strategy at Societe Generale in New
York.
    She added that the market's bias is still to push rates
higher. "The market is looking past the election and regardless
of who gets elected, there is potential for more fiscal
spending. That means higher yields and steeper curves."
    In mid-morning trading, U.S. 10-year yields fell
to 0.771%, from 0.785% late on Wednesday. Ten-year yields rose
to their highest level since June on Wednesday.
    U.S. 10-year yields further slipped after data showed
jobless claims totaled 840,000 for the week ended Oct. 3,
compared with an upwardly revised 849,000 in the prior week.
Economists polled by Reuters had forecast 820,000 jobless claims
applications in the latest week.
    Yields on U.S. 30-year bonds were at 1.571%,
down from 1.589% the previous session. On Tuesday, 30-year
yields climbed to a four-month peak.
    On the short end of the curve, U.S. two-year yields slipped
to 0.152%, from Wednesday's 0.157%.
    The spread between five-year and 30-year yields also shrank
to 123.30 basis points.
    Investors now looked to the $23 billion U.S. 30-year bond
auction.
    "The fact that 30s have led the sell-off introduces a
substantial yield pickup for investors ... and should introduce
some upside to today's auction result," said BMO Capital Markets
in its research note.
    But the bank noted that as the recovery continues and
optimism increases next year, the 30-year bond could sell off
further that could provide better opportunities to get invested
over the next few months.

      October 8 Thursday 10:18AM New York / 1418 GMT



                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.095        0.0963    -0.003
 Six-month bills               0.11         0.1116    0.000
 Two-year note                 99-243/256   0.1508    -0.006
 Three-year note               99-202/256   0.1955    -0.007
 Five-year note                99-148/256   0.3356    -0.009
 Seven-year note               98-210/256   0.5476    -0.010
 10-year note                  98-152/256   0.7735    -0.012
 20-year bond                  96-76/256    1.338     -0.016
 30-year bond                  95-84/256    1.5717    -0.017

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap         8.75         0.50
 spread
 U.S. 3-year dollar swap         8.00         0.75
 spread
 U.S. 5-year dollar swap         7.50         0.50
 spread
 U.S. 10-year dollar swap        2.50         0.25
 spread
 U.S. 30-year dollar swap      -36.00         0.50
 spread


 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Nick Zieminski)

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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