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Bonds News

TREASURIES-Hopes for a stimulus bill drive yields higher

(New throughout)

NEW YORK, Sept 30 (Reuters) - Demand for safe-haven Treasury debt waned Wednesday, driving yields up, on some signs of progress in negotiations over a coronavirus stimulus bill, which is expected to be voted on in Congress later in the day.

Treasury Secretary Steven Mnuchin and U.S. House of Representatives Speaker Nancy Pelosi both expressed hopes for a breakthrough in talks over the relief package. The House is slated to vote on a new $2.2 trillion Democratic coronavirus bill late Wednesday.

Anticipation for a bill drove risk assets higher - the three major U.S. stock indexes were all up over 1% on the day - and prices on safe-havens like Treasury bonds lower.

“That’s really where the stock market caught a bid and the bond market started cratering: on the news of some sort of potential for a deal,” said Ellis Phifer, market strategist at Raymond James.

Market expectations of a deal may have also been raised by the chaotic and hostile debate between Republican President Donald Trump and Democratic rival Joe Biden on Tuesday evening.

“I think that people are thinking after the debate that Trump may be looking ... for something to take the attention away from the debate and turn the story in a more positive light towards him,” said Tom Simons, money market economist at Jefferies.

Also bolstering risk assets was the Chicago Purchasing Managers Index which showed that business conditions in the Chicago area, a hub for car and car parts manufacturing, improved far more than expected. The report, which was unexpectedly released more than an hour and a half early on Wednesday morning by MNI Indicators, showed the index jumped to 62.4 in September, the highest since December 2018, versus 52 forecast by participants in a Reuters poll.

A separate report on Wednesday showed that U.S. private employers stepped up hiring in September.

The benchmark 10-year yield was last up 3.6 basis points to 0.681%, having earlier hit its highest since Sept. 10. The long bond yield also hit its highest since Sept. 10 earlier in the day and was last up 5.2 basis points to 1.458%. The two-year yield remained anchored, last up 0.2 basis point to 0.127%.

With interest rates expected to be near zero for the next few years, the two-year yield has little chance to break out of the narrow range in which it has been trading since May at least. The yield curve, as measured by the spread between the two- and 10-year yields, was last steeper at 55.2 basis points. (Reporting by Kate Duguid; Editing by Will Dunham and Andrea Ricci)

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