TREASURIES-Yields tumble as new virus variant spurs hunt for safe havens

BY Reuters | TREASURY | 11/26/21 11:05 AM EST
    (Adds quote, updates trading throughout)
    By David Randall
    NEW YORK, Nov 26 (Reuters) - U.S. Treasury yields posted
their sharpest drop since the pandemic began Friday as investors
rushed toward safe haven assets following the emergence of a new
coronavirus variant in South Africa.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was down 14.2
basis points at 0.502, the sharpest drop since March 2020.
    The yield on 10-year Treasury notes was down
14.9 basis points at 1.495%, the largest drop since February of
this year. It last traded at these levels in early November.
    "The economic recovery has been quite impressive and the one
thing that could knock it over completely would be a more
dangerous variant. Time will tell how worried we should be, but
investors are selling in front of potential bad news," said Ryan
Detrick, chief market strategist for LPL Financial.
    Yields had been rising throughout the week following
President Joseph Biden's announcement Monday that he would
renominate Jerome Powell to a second term at the helm of the
Federal Reserve. That, along with signs of strength in the U.S.
economy, had pressed investors into taking bets that the Fed
would move more aggressively to fight inflation.
    "Inflation is rising, and COVID news are getting worrisome.
The problem is that they can't use the same tools to fight back
inflation and the economic slowdown. And the choice will be
difficult," said Ipek Ozkardeskaya, a senior analyst at
    European stocks were set for their worst day in more than a
year as countries in Europe tightened travel controls in hopes
of containing the new variant.
    In the United States, the blue-chip Dow Jones Industrial
Average fell more than 2%, while the Russell 2000 index of
smaller companies tumbled more than 3.6%.
    The yield curve steepened, with spreads between five- and
30-year Treasuries rising back to their levels before the news
of Powell's reappointment on Monday.

    November 26 Friday 10:52AM New York / 1552 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.0525       0.0532    -0.008
 Six-month bills               0.0875       0.0888    -0.010
 Two-year note                 99-253/256   0.5059    -0.138
 Three-year note               99-216/256   0.8035    -0.160
 Five-year note                100-92/256   1.1758    -0.168
 Seven-year note               100-152/256  1.4106    -0.168
 10-year note                  98-228/256   1.4953    -0.149
 20-year bond                  101-128/256  1.9092    -0.125
 30-year bond                  100-144/256  1.8504    -0.121

                               Last (bps)   Net
 U.S. 2-year dollar swap        22.00        -1.25
 U.S. 3-year dollar swap        21.00        -1.25
 U.S. 5-year dollar swap        10.25         0.00
 U.S. 10-year dollar swap        4.25        -0.75
 U.S. 30-year dollar swap      -18.00        -0.75

 (Reporting by David Randall; Editing by Kirsten Donovan and
David Clarke)

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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