TREASURIES-U.S. yields decline, curve flattens on stimulus uncertainty

BY Reuters | TREASURY | 10/08/20 03:33 PM EDT
       * Trump says COVID-19 aid talks have resumed
    * Pelosi says no airline deal without broad COVID bill
    * U.S. jobless claims weaker than expected
    * U.S. 30-year bond auction outcome on the weak side

 (Adds new comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 8 (Reuters) - U.S. Treasury yields retreated
on Thursday, with those on long-dated debt falling from
four-month peaks hit earlier this week, amid persistent
uncertainty about the stimulus talks on coronavirus aid.
    The yield curve flattened a bit, with the spread between the
two-year and 10-year yields at 61.6 basis points.
Since late July, though, the curve has steepened by around 30
basis points on expectations of growth and inflation given the
U.S. stimulus to combat the virus' negative impact.
    U.S. yields, however, inched higher after a soft 30-year
bond auction. The high yield for the auction was 1.578%, above
market expectations at the bid deadline. The bid-to-cover ratio,
a measure of demand, was at 2.29, slightly below the 2.31 last
    Markets, though, were focused on U.S. stimulus discussions.
    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 cited a good chance a deal could be reached.
He gave no other details about a possible agreement.

    Treasury yields inched higher after Trump's comments, but
came back down.
    U.S. House Speaker Nancy Pelosi said on Thursday, however,
there would be no additional federal aid for U.S. airlines
without a more comprehensive COVID-19 relief package, adding she
was hopeful for a larger deal "because it has to be done."

    Pelosi's comments pushed U.S. 10-year and 30-year yields to
session lows.
    Trump had pushed late on Tuesday for a targeted aid package
for airlines, individuals and small businesses.
    "It's overall general uncertainty. It's a very shaky
environment," said Kim Rupert, managing director of global fixed
income analysis at Action Economics in San Francisco, explaining
the fall in yields.
    Rupert said she did not believe Republicans would go for
Pelosi's broad stimulus plan, because it had too many non-COVID
provisions. "We're so close to the elections now that I don't
think there's room to compromise."
    In late afternoon trading, U.S. 10-year yields
fell to 0.766%, 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.

    Yields on U.S. 30-year bonds were at 1.569%,
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 0.146% from Wednesday's 0.157%.
    The spread between five-year and 30-year yields also shrank
to 123.50 basis points.
    With auctions out of the way, market participants are
looking to see whether the yield curve's steepening trend will
    "We know the Federal Reserve is sitting on rates so we don't
think rates are going to go very high," said Action's Rupert.
"The Fed continues to expect tame inflation so that's also
limiting the upside in yields."

      October 8 Thursday 3:11PM New York / 1911 GMT

                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.095        0.0963    -0.003
 Six-month bills               0.11         0.1116    0.000
 Two-year note                 99-245/256   0.1468    -0.010
 Three-year note               99-206/256   0.1903    -0.013
 Five-year note                99-158/256   0.3276    -0.017
 Seven-year note               98-224/256   0.5396    -0.018
 10-year note                  98-164/256   0.7685    -0.017
 20-year bond                  96-100/256   1.3325    -0.021
 30-year bond                  95-100/256   1.569     -0.020

                               Last (bps)   Net
 U.S. 2-year dollar swap         8.75         0.50
 U.S. 3-year dollar swap         8.00         0.75
 U.S. 5-year dollar swap         7.75         0.75
 U.S. 10-year dollar swap        3.00         0.75
 U.S. 30-year dollar swap      -35.25         1.25

 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Nick Zieminski and Richard Chang)

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