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TREASURIES-Yields fall ahead of November U.S. jobs report

Karen Pierog
·4 min read

(Recasts, updates yields, adds analyst comments, 10-year breakeven, auctions next week, BofA report) By Karen Pierog CHICAGO, Dec 3 (Reuters) - U.S. Treasury yields drifted lower on Thursday as the market looked ahead to the November employment report to cap a week of rate surges and retreats, seeking clues from the data on where the coronavirus-battered economy is headed. The benchmark 10-year yield was last down 2.6 basis points at 0.9195%. Friday's release of employment data follows Thursday's report on initial claims for state unemployment benefits, which totaled a seasonally adjusted 712,000 for the week ended Nov. 28, compared with 787,000 in the prior week, according to the U.S. Labor Department. Economists polled by Reuters had forecast 775,000 applications in the latest week. Anders Persson, chief investment officer of fixed income at Nuveen, called the jobless claims "somewhat uneventful," adding that the November employment report would be the last big economic data for 2020. "So the market is basically looking at that as a more impactful driver of where we're heading from an economic perspective," he said. Economists polled by Reuters expect last month's unemployment rate dipped to 6.8% from 6.9% in October and that nonfarm payrolls increased by 469,000 jobs. An upbeat report may lessen the urgency, particularly on the part of Republican U.S. Senate Majority Leader Mitch McConnell, to push for a new stimulus package to aid the economy, said Blake Gwinn, U.S. rates strategist at NatWest Markets in Stamford, Connecticut. Renewed focus on stimulus in Washington sent Treasury yields soaring on Tuesday, but no agreement is yet in sight. Developments on the stimulus front have been lifting inflation expectations, hoisting the inflation breakeven for 10-year Treasury Inflation Protected Securities (TIPS) on Thursday to 1.874% late in the day, its highest level since May 2019. Yields got a bit of downward momentum after the Institute for Supply Management reported that the nation's services industry activity slowed to a six-month low, with its non-manufacturing activity index falling to a reading of 55.9 for November. That was the lowest reading since May when the recovery started and followed 56.6 in October. Meanwhile, the U.S. Treasury announced it will offer $56 billion of three-year notes, $38 billion of 10-year notes and $24 billion of 30-year bonds in auctions next week. "You can't ignore the fact that these auction sizes are much, much larger than they were pre-COVID," Gwinn said, adding that for the most part "demand so far has still been there." BofA Global Research analysts on Thursday brought up the possibility that short-term Treasury yields could trade to zero next year. They said the Federal Reserve risks "losing control of front-end rates to the downside" in the first half of 2021 from a combination of bill supply cuts and a sharp increase in reserves. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was last down a basis point at 0.1545%. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was last at 76.33 basis points, about a basis point lower than Wednesday's close. The spread reached its widest since February 2018 at 79.60 basis points on Wednesday. December 3 Thursday 3:03PM New York / 2103 GMT Price Current Net Yield % Change (bps) Three-month bills 0.08 0.0811 0.000 Six-month bills 0.09 0.0913 0.000 Two-year note 99-241/256 0.1545 -0.010 Three-year note 100-32/256 0.2074 -0.011 Five-year note 99-222/256 0.4019 -0.019 Seven-year note 99-182/256 0.6674 -0.028 10-year note 99-148/256 0.9195 -0.026 20-year bond 98-132/256 1.461 -0.034 30-year bond 99 1.6675 -0.036 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.75 0.50 spread U.S. 3-year dollar swap 7.00 0.50 spread U.S. 5-year dollar swap 5.50 1.00 spread U.S. 10-year dollar swap -0.75 0.50 spread U.S. 30-year dollar swap -30.75 1.00 spread (Reporting by Karen Pierog; editing by Jonathan Oatis and Tom Brown)