TREASURIES-Yields hit four-month highs on hopes for bigger stimulus package

BY Reuters | TREASURY | 10/21/20 09:44 AM EDT
    (Adds quotes, updates prices)
    By Karen Brettell
    NEW YORK, Oct 21 (Reuters) - Benchmark U.S. Treasury yields
rose to four-month highs on Wednesday on hopes that U.S.
lawmakers will reach a deal to pass new fiscal stimulus in the
near term, and before the Treasury Department will sell new
20-year debt.
    The White House and Democrats in the U.S. Congress moved
closer to agreement on a new coronavirus relief package on
Tuesday as President Donald Trump said he was willing to accept
a large aid bill despite opposition from his own Republican
    ?Broadly speaking the rise in yields this week can be
attributed to optimism on the stimulus package,? said Subadra
Rajappa, head of U.S. rates strategy at Societe Generale in New
York. ?As time goes by it feels more and more likely it?s going
to be a bigger package given that the Dems seem to be driving
the discussion.?
    Some investors are betting that long-dated yields will rise
after the Nov. 3 presidential if Democrats win a majority in the
Senate and pass more stimulus than is expected from Republicans.
    But other Democrat policies are also viewed as potentially
weighing on the economy.
    ?The market is at an interesting juncture where not only are
there differing views about what the most likely outcome is into
and through the election, but also differing views on what the
market reaction should be for the same outcome,? said Michael de
Pass, global head of U.S. Treasury trading at Citadel
    ?The broadly accepted narrative is that a Democratic sweep
is going to be bearish for Treasuries, but now there are people
interested in taking the other side of the argument, saying that
the likely increase in regulation and taxation could be quite
negative for economic growth, particularly if the fiscal
stimulus is not as targeted,? de Pass said.
    Benchmark 10-year note yields were last up two
basis points on the day at 0.814% after earlier reaching 0.836%,
the highest since June 9. The yield curve between two-year and
10-year notes steepened as far as 68 basis points,
the most since June 8.
    Yields on 20-year bonds rose two basis points to
1.380% before the Treasury Department will auction $22 billion
of the debt later on Wednesday.
    The Treasury will also sell $17 billion in five-year
Treasury Inflation-Protected Securities (TIPS) on Thursday.
      October 21 Wednesday 9:22 AM New York / 1322 GMT
 US T BONDS DEC0               173-4/32     -0-12/32
 10YR TNotes DEC0              138-144/256  -0-36/25
                               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                 99-243/256   0.1512    0.004
 Three-year note               99-200/256   0.1986    0.006
 Five-year note                99-124/256   0.3554    0.012
 Seven-year note               98-152/256   0.582     0.016
 10-year note                  98-56/256    0.8142    0.017
 20-year bond                  95-152/256   1.3799    0.016
 30-year bond                  94-76/256    1.6168    0.014

                               Last (bps)   Net
 U.S. 2-year dollar swap         8.25        -0.25
 U.S. 3-year dollar swap         7.75        -0.25
 U.S. 5-year dollar swap         7.25        -0.50
 U.S. 10-year dollar swap        2.50        -0.25
 U.S. 30-year dollar swap      -35.50         0.00

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.

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