July 16, 2020 / 7:31 PM / 18 days ago

TREASURIES OUTLOOK-Yields fall as COVID-19 spread weighs on risk sentiment

NEW YORK, July 16 (Reuters) - U.S. Treasury yields fell on Thursday as the rapid spread of coronavirus cases across some American states weighed on risk sentiment, even as data showed U.S. economic improvement.

A surge in COVID-19 infections in numerous Southern U.S. states has raised concerns that new business shutdowns meant to stem the spread of the virus will cause fresh economic damage.

“The next two months are really critical, can the economy survive this surge in COVID cases in the Sunbelt, is that surge going to manifest itself elsewhere too,” said Tom Simons, a money market economist at Jefferies in New York.

“The risk of owning some protection is relatively low and I think that’s generally the bias. You want to have some Treasuries no matter what,” Simons added.

Benchmark 10-year notes fell two basis points to 0.612%. They have held in a tight range from 0.569% to 0.784% since mid-June.

The yield curve between two-year and 10-year notes flattened one basis point to 47 basis points.

Bonds rallied even after U.S. data showed recent improvement in the economy.

U.S. retail sales increased by 7.5% in June, which was more than economists expected. A gauge of manufacturing activity in the U.S. Mid-Atlantic region also jumped in July.

The Labor Department showed 1.30 million people filed for state unemployment benefits during the week ending July 11, slightly down from 1.31 million in the prior period.

That was above economists’s expectations of 1.25 million claims, however, and investors are concerned that they could rise again as more businesses close to contain the spread of COVID-19.

Chicago Federal Reserve Bank President Charles Evans said on Thursday he would be “hard-pressed” to think of any reason to start to raise interest rates unless inflation soars above the Fed’s 2% target, a development he said was unlikely.

Evans forecast U.S. unemployment to fall only to 6.5% by the end of next year, above the level many economists see as consistent with full employment.

Reporting by Karen Brettell; editing by Jonathan Oatis

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