Bonds News

TREASURIES-Hopes for a stimulus bill drive yields higher

(Adds details on month-end flows, updates yields, add analyst comment)

NEW YORK, Sept 30 (Reuters) - Demand for safe-haven Treasury debt waned on 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.

U.S. Treasury Secretary Steven Mnuchin on Wednesday said talks with House of Representatives Speaker Nancy Pelosi on coronavirus relief legislation had made progress, though no deal was reached. The House is slated to vote on a new $2.2 trillion Democratic relief bill late on Wednesday.

Anticipation for a bill drove risk assets higher 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 also may have 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 sentiment 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 3.7 basis points to 0.682%, 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%.

The yield curve, as measured by the spread between the two- and 10-year yields, was last steeper at 55.1 basis points.

Some of the earlier rise in yields waned later on Wednesday, which some analysts attributed to month-end bond buying. The average maturity of a bond portfolio falls at the end of the month when existing debt moves closer to its maturity. Investors buy additional bonds to rebalance their overall duration. (Reporting by Kate Duguid; Editing by Will Dunham and Andrea Ricci)