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TREASURIES-U.S. yields fall, curve flatter on virus woes, possible weak data next week

Gertrude Chavez-Dreyfuss
·3 min read

By Gertrude Chavez-Dreyfuss NEW YORK, Nov 27 (Reuters) - U.S. Treasury yields were lower on Friday in thin post-holiday trading, weighed down by persistent concerns about the continued surge in coronavirus cases and possibly weaker economic data next week amid renewed lockdowns around the world. Markets were closed on Thursday for the U.S. Thanksgiving holiday. The yield curve was also flatter for a second straight day, as long-end yields continued their descent, with investors mulling the prospect that the Federal Reserve could extend purchases to longer-dated maturities possibly at this month's Fed meeting. The surging COVID-19 numbers though remained a market focus despite positive news on the vaccine front. U.S. coronavirus deaths were now at more than 260,000, while cases continued to grow, nearing 13 million. "This is a very thin market and I don't think anybody should put a lot of stock in what's going on here," said Stan Shipley, fixed income strategist, at Evercore ISI in New York. "But that said, people are still looking at the daily counts of coronavirus cases, the hospitalizations, and all that. These numbers are terrible," he added. Next week's heavy slate of U.S. economic data, which includes non-farm payrolls for November could reinforce expectations of a setback in the U.S. recovery as several states instituted shutdowns to prevent the spread of the virus, analysts said. In morning trading, U.S. benchmark 10-year yields fell to 0.85%, from 0.878% late on Wednesday. U.S. 30-year yields slid to 1.583% from Wednesday's 1.62%. On the front end of the curve, U.S. two-year yields dropped to a two-week low of 0.154% and was last down at 0.156% from 0.16% on Wednesday. The yield curve flattened, with the spread between the two-year and 10-year notes at 69.6 basis points. Fed policymakers in November discussed how the central bank's asset purchases could be modified to maximize support for the markets, according to the Fed minutes released on Wednesday. Some participants said they expected the Fed to eventually lengthen the maturity of the bonds purchased. Some investors already were raising their expectations that the Fed may increase its government bond purchases or adjust the maturity of bonds purchased. "The Fed's outlook on asset purchases here are definitely a factor on why yields are lower," said Evercore's Shipley. "That goes into our fair value metrics and how the 10-year should move from here. The Fed wants to extend duration because they don't want the 10-year to get higher than the 1 pct ceiling." November 27 Friday 10:25AM New York / 1525 GMT Price Current Net Yield % Change (bps) Three-month bills 0.0825 0.0839 -0.002 Six-month bills 0.09 0.0913 0.000 Two-year note 99-240/256 0.1563 -0.004 Three-year note 100-38/256 0.1997 -0.008 Five-year note 100 0.375 -0.014 Seven-year note 100 0.625 -0.021 10-year note 100-56/256 0.852 -0.026 20-year bond 100-16/256 1.3714 -0.036 30-year bond 100-244/256 1.5849 -0.035 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 9.25 -0.25 spread U.S. 3-year dollar swap 9.25 0.25 spread U.S. 5-year dollar swap 6.50 0.00 spread U.S. 10-year dollar swap 0.00 0.00 spread U.S. 30-year dollar swap -32.00 -0.25 spread (Reporting by Gertrude Chavez-Dreyfuss Editing by Alistair Bell)