March 24, 2020 / 8:14 PM / 4 days ago

TREASURIES-Yields tick up ahead on hopes for $2 trillion stimulus

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By Kate Duguid

NEW YORK, March 24 (Reuters) - U.S. government bond yields rose on Tuesday and one measure of the yield curve steepened as investors waited for Congress to vote on a $2 trillion stimulus bill to combat the blow dealt to the U.S. economy by the coronavirus pandemic.

Senior Democrats and Republicans in the divided U.S. Congress said on Tuesday they were close to a deal on a $2 trillion stimulus package to limit the coronavirus pandemic’s economic toll, but it was unclear when they would be ready to vote on a bill.

The move higher in Treasury yields on Tuesday comes after they had fallen for the three prior sessions, with the two-year yield dipping to a seven-year low on Monday. In spite of the stimulus measures introduced by the Federal Reserve this week and last, investors continued to buy high-quality assets like government bonds as risk appetite remained muted.

That began to change on Tuesday as Wall Street recovered from three-year lows hit Monday.

The benchmark 10-year yield was up 7 basis points to 0.837%, with the two-year yield up 9.4 basis points to 0.389%. The 30-year long bond yield was last up 4.7 basis points to 1.393%.

“A single day doesn’t make a trend, but it can break one. At least that is the sentiment currently at play in risk assets; for the time being,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

“As an indication that the more traditional correlations between financial markets are beginning to return, Treasuries were under pressure throughout the session as risk assets found their footing.”

The spread between the three-month and 10-year yields, the Fed’s preferred metric for the yield curve, steepened on Tuesday as yields rose, up 8.3 basis points. A steeper yield curve indicates that sentiment about the economy is rising while monetary policy remains appropriately loose.

Also on Tuesday, the Treasury Department auctioned off $40 billion of two-year notes to relatively weak demand. The bid-to-cover ratio, a measure of overall demand, was 2.36 versus an average 2.56.

The weak auction was not surprising, wrote analysts at Action Economics, given the current state of markets.

“Demand was limited by the dramatic richening in rates this month, not to mention the recent yield swings amid global uncertainties over the spread of coronavirus,” they said, noting that “the offering did cheapen today thanks to the huge rally on Wall Street.”

Reporting by Kate Duguid Editing by Chris Reese and Marguerita Choy

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