TREASURIES-Yields pare rise as stimulus optimism fades

BY Reuters | TREASURY | 10/19/20 03:12 PM EDT
    (Adds quote, updates prices)
    By Karen Brettell
    NEW YORK, Oct 19 (Reuters) - U.S. Treasury yields came off
their highs on Monday as optimism ebbed that U.S. lawmakers will
reach a deal to launch new stimulus in the near term, though the
yields held higher on the day.
    House Speaker Nancy Pelosi said on Sunday that differences
remained with President Donald Trump's administration on a
wide-ranging coronavirus relief package but that she was
optimistic legislation could be pushed through before Election
    ?There was some optimism about a deal potentially being
reached ? it seems like some of that optimism has started to
fade a little bit," said Gennadiy Goldberg, an interest rate
strategist at TD Securities in New York. ?People realize that
the real stimulus is very likely to come after the election, and
most likely in early 2021.?
    Benchmark 10-year note yields rose two basis
points on the day to 0.762%, after earlier getting as high as
0.781%. The yields have traded in a tight range from 0.50% to
0.80% since April, with the exception of a brief spike to 0.96%
in early June.
    Some investors are betting long-dated yields will rise after
the Nov. 3 presidential election on the likelihood of greater
fiscal spending to boost the economy, with Democrats expected to
support a larger package if they win a majority in the Senate.
    Ongoing weakness from Covid-related business disruptions,
however, is likely to keep downward pressure on yields with the
Federal Reserve also likely to act to keep rates near historical
lows unless the economy shows improvement.
    "The economic destruction from Covid, in my view, will keep
rates pretty low,? said Tom di Galoma, a managing director at
Seaport Global Holdings in New York.
    The Treasury Department will sell $22 billion in 20-year
bonds on Wednesday and $17 billion in five-year Treasury
Inflation-Protected Securities (TIPS) on Thursday.

      October 19 Monday 3:00PM New York / 1900 GMT
 US T BONDS DEC0               174-16/32    -0-13/32
 10YR TNotes DEC0              138-236/256  -0-36/25
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.095        0.0963    0.000
 Six-month bills               0.1125       0.1141    -0.003
 Two-year note                 99-245/256   0.1471    0.002
 Three-year note               99-208/256   0.188     0.005
 Five-year note                99-156/256   0.3297    0.012
 Seven-year note               98-224/256   0.5403    0.015
 10-year note                  98-180/256   0.7623    0.018
 20-year bond                  96-180/256   1.3145    0.018
 30-year bond                  95-220/256   1.5489    0.020

                               Last (bps)   Net
 U.S. 2-year dollar swap         8.50         0.00
 U.S. 3-year dollar swap         8.25         0.25
 U.S. 5-year dollar swap         7.75         0.25
 U.S. 10-year dollar swap        3.00         0.50
 U.S. 30-year dollar swap      -35.00         1.00

 (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.

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