TREASURIES-Yields dip modestly going into long weekend as stocks rally

BY Reuters | TREASURY | 10/09/20 11:03 AM EDT

By Kate Duguid

NEW YORK, Oct 9 (Reuters) - Yields on longer-dated Treasury bonds dipped slightly on Friday morning as traders took profits on positions, driving prices higher on safe-haven assets even as the U.S. stock market experienced a modest risk-on rally.

The benchmark 10-year yield was last down half a basis point to 0.762% with the two-year yield flat at 0.147%. That narrowed the yield curve, measured by the spread between two- and 10-year yields, by about 2 basis points to 61.3 basis points.

"It doesn't seem like there's any massive new fundamental reason for the rally. We're hearing about short covering or profit taking going into the weekend with some clients who had recently positioned short," said Jon Hill, U.S. rates strategist at BMO Capital Markets.

Hill also noted that the 10-year Treasury yield is currently being determined by technical factors. Though the yield has risen this week on an intra-day basis to its highest since June 10, above the previous peak hit on Aug. 28, it has closed below the August level on days it was breached intra-day.

"It's also telling that the biggest support level in 10-year Treasuries wasn't breached on a closing basis. August 28th yield peak was 78.7 basis points and although we had three days with a close very close to that, none were actually able to breach that," said Hill.

The move in Treasuries on Friday morning did not appear to be evidence of risk aversion. All three major U.S. stock indexes were up on the day on market optimism about pandemic stimulus spending.

Stocks rallied after U.S. President Donald Trump said on Thursday talks with Congress had restarted on targeted fiscal relief, after calling off negotiations earlier this week.

Investors are also betting that Joe Biden, Trump's challenger in the Nov. 3 presidential election, will win, potentially leading to a bigger stimulus package.

(Reporting by Kate Duguid Editing byChizu Nomiyama)

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.

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