TREASURIES-Yields reach four-month highs on stimulus hopes

BY Reuters | TREASURY | 10/20/20 03:15 PM EDT
    (Adds quote, details on stimulus talks, updates yields)
    By Karen Brettell
    NEW YORK, Oct 20 (Reuters) - Benchmark U.S. Treasury yields
hit four-month highs on Tuesday and the yield curve steepened as
hopes grew that U.S. lawmakers will agree on a deal for new
    President Donald Trump on Tuesday pushed for a comprehensive
COVID-19 relief package, and said he would accept a deal worth
more than $2.2 trillion despite opposition to large spending
measures among his fellow Republicans in the U.S. Senate.
    House of Representatives Speaker Nancy Pelosi said she was
optimistic Democrats could reach a bipartisan deal as talks with
Treasury Secretary Steven Mnuchin approached a Tuesday deadline
for reaching a deal that could pass Congress before Election Day
on Nov. 3.
    "Once again the market (is) pricing in some hope of a last
minute fiscal package, and it seems like what we?ve heard from
the speaker of the house has been encouraging enough to help
risk assets and cause a little bit of a steepening of the U.S.
yield curve," said Michael Lorizio, senior fixed income trader
at Manulife Asset Management in Boston.
    Benchmark 10-year note yields rose four basis
points on the day to a high of 0.801%, the highest since June
10. 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.
    The yield curve between two-year and 10-year notes
 steepened to 65 basis points, the steepest since
June 8.
    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 would 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.

    October 20 Tuesday 3:06PM New York / 1906 GMT
 US T BONDS DEC0               173-15/32    -1-1/32
 10YR TNotes DEC0              138-176/256  -0-60/25
                               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                 99-245/256   0.1472    0.000
 Three-year note               99-204/256   0.1933    0.005
 Five-year note                99-140/256   0.3425    0.012
 Seven-year note               98-180/256   0.5658    0.026
 10-year note                  98-96/256    0.7974    0.035
 20-year bond                  95-220/256   1.3641    0.050
 30-year bond                  94-156/256   1.6031    0.055

                               Last (bps)   Net
 U.S. 2-year dollar swap         8.50         0.00
 U.S. 3-year dollar swap         8.00        -0.25
 U.S. 5-year dollar swap         7.75         0.00
 U.S. 10-year dollar swap        2.75        -0.25
 U.S. 30-year dollar swap      -35.25        -0.25

 (Editing by Nick Zieminski and Tom Brown)

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.