TREASURIES-Yields rise as Trump boosts stimulus hopes

BY Reuters | TREASURY | 10/20/20 09:35 AM EDT
       By Karen Brettell
    NEW YORK, Oct 20 (Reuters) - U.S. Treasury yields rose to
the top end of their months-long range on Tuesday on hopes that
U.S. lawmakers will pass new stimulus, as U.S. President Donald
Trump said he supports a ?bigger? deal.
    Trump predicted on Tuesday that his fellow Republicans in
the U.S. Senate would go along if the White House reaches a
coronavirus relief deal with Democratic House Speaker Nancy
Pelosi, despite many senators' stated opposition to any large
stimulus package.
    "I want to do it even bigger than the Democrats," Trump said
in an interview with Fox News. "Not every Republican agrees with
me, but they will."
    U.S. Senate Republicans are preparing to bring up
legislation on Tuesday to replenish a program that helps small
businesses slammed by the coronavirus, as Pelosi and Treasury
Secretary Steve Mnuchin discuss a larger stimulus package.

    ?It seems like the most recent move higher in yields came as
we got these headlines from Trump saying that he wants to go
bigger than the Democrats, and that he could get (U.S. Senate
Majority Leader Mitch) McConnell on board if there is a deal,?
said Tom Simons, a money market economist at Jefferies in New
    ?The market has really been beholden to these on and off
again headlines about a Phase 4 deal for weeks now,? Simons
    Benchmark 10-year note yields were last up three
basis points higher on the day at 0.791%. 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.
    New government spending should improve the economic outlook
but also increase Treasury supply.
    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 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.
    Data on Tuesday showed that U.S. homebuilding rebounded in
September and that the Philadelphia Federal Reserve?s
non-manufacturing business conditions index rose in October.

    October 20 Tuesday 9:16AM New York / 1316 GMT
 US T BONDS DEC0               173-24/32    -0-24/32
 10YR TNotes DEC0              138-188/256  -0-48/25
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.1          0.1014    0.000
 Six-month bills               0.115        0.1167    0.000
 Two-year note                 99-244/256   0.1492    0.002
 Three-year note               99-204/256   0.1933    0.005
 Five-year note                99-140/256   0.3425    0.012
 Seven-year note               98-188/256   0.5611    0.021
 10-year note                  98-112/256   0.7907    0.029
 20-year bond                  96-24/256    1.3503    0.036
 30-year bond                  95-8/256     1.5847    0.037

                               Last (bps)   Net
 U.S. 2-year dollar swap         8.50         0.00
 U.S. 3-year dollar swap         8.25         0.00
 U.S. 5-year dollar swap         7.75         0.00
 U.S. 10-year dollar swap        2.50        -0.50
 U.S. 30-year dollar swap      -35.75        -0.75

 (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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