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TREASURIES-Yields hit four-month highs on fiscal stimulus hopes

Karen Brettell
·3 min read

(Adds details on stimulus talks, updates yields) By Karen Brettell NEW YORK, Oct 22 (Reuters) - Benchmark U.S. Treasury yields rose to four-month highs on Thursday and the yield curve steepened on hopes that U.S. lawmakers are close to striking a deal on new fiscal stimulus. U.S. House Speaker Nancy Pelosi said on Thursday negotiators were making progress in talks with the Trump administration for another round of financial aid amid the COVID-19 pandemic and that legislation could be hammered out "pretty soon." Hopes of new fiscal spending has dominated trading this week, and sent yields higher as it appears that a near-term deal is more likely. "It's headline driven at this point," said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York. Many investors are betting that new stimulus is likely after the Nov. 3 presidential election if lawmakers do not agree to it now, with Democrats likely to offer a larger package if they win a majority in the Senate. Benchmark 10-year Treasury yields rose as high as 0.853%, the highest since June 9. The yield curve between two-year and 10-year notes steepened to 70 basis points, the widest spread since June 8. New fiscal spending should improve the U.S. economic outlook and raises the prospect of higher inflation, which would send yields higher. A glut of Treasury supply to finance the spending could also weigh on the U.S. bond market. Analysts caution that ongoing economic weakness and global demand for yield could limit any large increase in bond yields. The Federal Reserve is also expected to shift more of its bond purchases to longer-dated debt if it sees yields rising faster than economic growth warrants. Yields rose slightly on Thursday after U.S. data showed new claims for jobless benefits declined more than expected last week, though they remained extremely high. The Treasury Department saw strong demand for a $17 billion in five-year Treasury Inflation-Protected Securities (TIPS) on Thursday. It came after a solid auction of $22 billion in 20-year bonds on Wednesday. October 22 Thursday 3:00PM New York / 1900 GMT Price US T BONDS DEC0 172-12/32 -0-23/32 10YR TNotes DEC0 138-88/256 -0-60/25 6 Price Current Net Yield % Change (bps) Three-month bills 0.09 0.0913 -0.005 Six-month bills 0.11 0.1116 -0.005 Two-year note 99-242/256 0.1533 0.004 Three-year note 99-196/256 0.204 0.008 Five-year note 99-102/256 0.3731 0.022 Seven-year note 98-112/256 0.6053 0.025 10-year note 97-236/256 0.8461 0.030 20-year bond 94-240/256 1.419 0.032 30-year bond 93-100/256 1.6568 0.028 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 8.25 0.00 spread U.S. 3-year dollar swap 7.50 0.00 spread U.S. 5-year dollar swap 6.75 -0.75 spread U.S. 10-year dollar swap 2.50 -0.25 spread U.S. 30-year dollar swap -35.25 -0.25 spread (Editing by Bernadette Baum and Richard Chang)