TREASURIES-Benchmark 10-year yield falls to near 1.5% as variant spurs hunt for safe havens

BY Reuters | TREASURY | 11/26/21 12:40 PM EST
    (Adds Fed funds rate, changes headline, updates trading
throughout)
    By David Randall
    NEW YORK, Nov 26 (Reuters) - U.S. Treasury debt yields on
Friday posted their sharpest drop since the pandemic began 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 12.4
basis points at 0.520%, the sharpest drop since March 2020.
    The yield on 10-year Treasury notes was down
13.5 basis points to 1.509%. It last traded at these levels in
early November.
    The yield on the 30-year Treasury bond was down
12.1 basis points to 1.850%.
    "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 the Fed would
move more aggressively to fight inflation.
    European stocks suffered their worst day in 17 months 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 the levels before the news
Monday of Powell's reappointment.
    Futures on the U.S. federal funds rate, which track
short-term interest rate expectations, jumped as investors
rethought bets the Fed would move quickly to hike rates to quell
inflation.
    According to CME's FedWatch tool, money market traders were
pricing in a 58.5% chance of at least a 0.25% hike by the
Federal Open Market Committee's June meeting, down from an 82.1%
chance Wednesday before the U.S. Thanksgiving holiday, and a 67%
chance a week ago before Biden renominated Powell.
    The 10-year TIPS breakeven rate was last at
2.553%.

    November 26 Friday 12:24PM New York / 1724 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.05         0.0507    -0.010
 Six-month bills               0.0875       0.0888    -0.010
 Two-year note                 99-245/256   0.5216    -0.122
 Three-year note               99-198/256   0.8276    -0.136
 Five-year note                100-64/256   1.1983    -0.146
 Seven-year note               100-116/256  1.4317    -0.147
 10-year note                  98-200/256   1.5072    -0.137
 20-year bond                  101-144/256  1.9055    -0.128
 30-year bond                  100-156/256  1.8484    -0.123

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        22.75        -0.50
 spread
 U.S. 3-year dollar swap        21.50        -0.75
 spread
 U.S. 5-year dollar swap        10.25         0.00
 spread
 U.S. 10-year dollar swap        4.25        -0.75
 spread
 U.S. 30-year dollar swap      -18.00        -0.75
 spread


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

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.

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