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Bonds News

TREASURIES-Yields dip as fourth quarter looks weak, TIPS auction sees strong demand

 (Adds TIPS auction results, Kaplan and investor comments, CNBC
stimulus report, updates prices)
    By Karen Brettell
    NEW YORK, Nov 19 (Reuters) - U.S. Treasury yields fell on
Thursday as the prospect of a weak fourth economic quarter
overcame optimism that vaccines against COVID-19 are close to
being rolled out and could return the economy to normal.
    "The focus has shifted away from exuberance on vaccines to
the rising infection rate and the start of the deterioration of
the fundamentals we’re seeing in the data heading into Q4," said
Subadra Rajappa, head of U.S. interest rates strategy at Societe
Generale in New York.
    The number of Americans filing new claims for jobless
benefits unexpectedly rose last week as new business closures to
control spiraling COVID-19 infections unleashed a fresh wave of
layoffs and further slowed the labor market recovery.

    Benchmark 10-year yields fell 3 basis points to
0.855%. The yields are down from an eight-month high of 0.975%
last week, when supply and optimism over vaccines pushed the
rates higher.
    The yields came off session lows of 0.842% in afternoon
trading after CNBC reported that Democratic and Republican
senators had agreed to resume stimulus talks.
    The yield curve between two-year and 10-year notes
 flattened 1 basis point to 68 basis points.
Thirty-year bonds outperformed, with the spread between the
bonds and 10-year notes tightening as far as 71
basis points, the smallest gap since Sept. 3.
    Yields on one-year Treasury bills fell to 0.101%,
the lowest since April. 
    Last week’s spike in yields has increased speculation that
the Federal Reserve may increase its purchases of long-dated
debt by shifting more of its bond purchases further out the
curve, or by increasing the overall amount of its quantitative
easing, in order to keep monetary conditions loose.
    But many analysts and investors see such a move as likely
only if 10-year yields rise above the 1% level and remain
elevated.
    At current levels, "I don’t know that they would start to
step in just yet," said Paula Solanes, senior portfolio manager
at SVB Asset Management. At the Fed’s December meeting the U.S.
central bank may “telegraph the message of what they plan to
do,” she said.
    Dallas Federal Reserve Bank President Robert Kaplan on
Thursday said that “if we needed to, if this got bad enough, we
could extend maturities, but I wouldn't increase the size.”

    The Treasury Department saw strong demand for a $12 billion
sale of 10-year Treasury Inflation-Protected Securities (TIPS)
on Thursday.
    The notes sold 1 basis point below where they traded before
the auction with high yield of -0.867%. Dealers took less than
average at 15.2% of the sale, indicating strong demand by
investors.
    Break-even rates on the 10-year TIPS are
pricing in average annual inflation of 1.681% over the coming
decade, with fiscal stimulus expected next year likely to boost
price pressures, but still leave them below Fed targets.
    The Fed has said it will allow inflation to run hotter than
its previous 2% target before tightening monetary policy.
    
    November 19 Thursday 3:00PM New York / 2000 GMT
                               Price                  
 US T BONDS DEC0               173-8/32     0-23/32   
 10YR TNotes DEC0              138-96/256   0-48/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.065        0.0659    -0.020
 Six-month bills               0.0925       0.0938    0.003
 Two-year note                 99-234/256   0.1693    -0.006
 Three-year note               100-20/256   0.2237    -0.005
 Five-year note                99-86/256    0.3857    -0.012
 Seven-year note               99-40/256    0.6243    -0.019
 10-year note                  100-48/256   0.8554    -0.027
 20-year bond                  100          1.375     -0.046
 30-year bond                  101-32/256   1.5778    -0.042
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         8.25         0.25    
 spread                                               
 U.S. 3-year dollar swap         7.50         0.25    
 spread                                               
 U.S. 5-year dollar swap         6.00         0.00    
 spread                                               
 U.S. 10-year dollar swap        0.00         0.50    
 spread                                               
 U.S. 30-year dollar swap      -31.75         0.50    
 spread (Reporting by Karen Brettell in New York
Editing by Jonathan Oatis and Matthew Lewis)
  
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